Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, May 7, 1995 TAG: 9505050039
SECTION: BUSINESS PAGE: F-1 EDITION: METRO
SOURCE: DAVID AND LOUISE HOLLYER SPECIAL TO THE ROANOKE TIMES & WORLD-NEWS
DATELINE: LENGTH: Long
A few days earlier, a stone manor house on Mud Lick Road brought $270,000, sold in less than 30 minutes, with the deal closed 10 days later.
Both properties were sold in March, by auction. A common method for selling used cars at Cloverdale and farm equipment in Buchanan, auctions increasingly are being used throughout the region to market real estate.
``Auctions are an excellent method to advance the sale - meaning to get it done and closed in 30 days so you don't go through a long one- or two-year listing period,'' said Jim Woltz, owner of Woltz Associates, a Roanoke real estate broker whose firm conducted the two March auctions.
The National Auctioneers Association in Overland Park, Kan., points out that in today's real estate market, clients need a quick turnaround of their assets. Today's economy requires timely marketing of a property so an owner's equity isn't eroded in the time it takes to market it through a typical negotiated sale. Even when property values are rising, the seller is paying interest, taxes, insurance, maintenance, security, management fees and promotional expenses.
``We are living in a world where speed and efficiency are the way of life, and we have found that buyers as well as sellers like the auction method because it is fast and efficient,'' said Sammy Ford, a past president of the auctioneers' association.
The auction industry consists of approximately 35,000 full-time auctioneers with an estimated 24,000 selling real estate. Many of them also are realty agents and brokers who also market property by more traditional methods, such as Woltz, J.G. Sheets & Sons and Hall Associates Inc. in Roanoke.
However, they are using auctions to sell all types of property: condominiums, single-family residences, apartment complexes, factories, hotels, agricultural land, developable land and government real estate.
More than $35 billion worth of real estate is being sold annually by auction, according to Auctions Today, a publication of the Certified Auctioneers Education Institute Inc.
In many ways, auctioning a property is similar to marketing it for conventional sale.
The first task of an auctioneer listing a new property is to develop a marketing campaign, meaning potential buyers are identified and contacted. Both realty agents and auctioners do this through newspaper and broadcast advertising, signs at the property, video presentations and direct mail.
Both make sure the property is ready for sale, which includes overseeing any needed repairs; preparing legal documents, including surveys and listing of environmental regulation considerations; and sometimes making advance financial arrangements for the sale.
Closing procedures after a successful sale also follow the conventional manner for real estate transactions.
The difference with auctioning generally is with the speed with which the property is traded. While traditional marketing of residential property often averages three months or longer - and a matter of years for commercial real estate - the auctioneer sets terms of the sale so there are no contingency clauses on auction day, no drawn-out process of offers and counteroffers; and the property usually is sold ``as is'' with no warranties.
Also, it is common for personal property - furniture and fixtures - to be auctioned at the same time as the real estate.
The buyer's advantage is that being assured he is purchasing the property at fair-market value because it is determined through open competitive bidding.
Closing and occupancy usually occur within 30 to 60 days. A package of terms usually is prepared in advance of the sale so all pertinent information and inspection reports on the property are available to the bidder.
Buyers at an auction generally must be prepared to pay a deposit of earnest money that may be higher than the nominal binder required in conventional sales. In both methods, the balance is due at closing. The buyer generally has proof he has obtained a pre-approved mortgage or line of credit and can provide the final payment within the time period written into the contract.
If the winning bidder is unable to consummate the sale, his earnest money deposit ususally is forfeited.
So bidders should be aware of terms and conditions.
A major difference between auctions and conventional selling methods is the commission and fee paid to the auctioneer. While a traditional sale generally means a commission of about 6 percent of the selling price, paid by the seller and split among the brokers handling the deal, the auction company's commission is a fee negotiated between the auction agent and the seller.
That fee takes into consideration the auctioneer's involvement in the selling process. It varies widely depending on the type and amount of property sold, but typically it ranges from 4 percent to 10 percent of the selling price plus marketing costs.
Also added to the price paid by the buyer is a "buyer's premium," paid by the buyer to the seller to offset the cost of staging the auction. This fee, generally equal to about 10 percent of the price of furniture, antiques, equipment and other personal property, in the past five years has become an element of realty auctions, where it equals 2 percent to 10 percent of the selling bid.
"It's not intended to replace the auctioneer's commission, which depending on the size of the bill can equal 6 to 10 percent, plus expenses," Woltz said. Rather, the buyer's premium pays the costs of promoting the auction and the often hundreds of hours to inventory items for a sale. For equipment or cars, it can include installing a new engine, for example, he said.
In the case of the downtown Roanoke commercial building, buyer Martin Hellkamp of Roanoke bid $155,000, plus a buyer's premium of $7,750, Woltz said.
``We're sold on auctions,'' said Garland Sheets, who with his two sons and daughter run J.G. Sheets & Sons, generally credited as Roanoke's oldest realty-auction firm. It was founded 75 years ago by Sheets' father. ``We can do it quicker, and we can get as much for it and even more in most cases, and we can get settlement a whole lot quicker.''
Although a major portion of their business is in commercial and residential real estate sales by conventional contracts or by auction, they'll sell most anything: personal property, liquidations of business assets, property foreclosures, personal collections or household furnishings.
On March 15, they auctioned the former Jefferson Street Baptist Church building on Albemarle Avenue Southwest. ``You don't sell too many churches,'' Sheets observed dryly.
Hall Associates Inc., one of the region's major brokers for commercial and industrial real estate, formed an auction division five years ago. Owner Edwin Hall said the division specializes in sale of commercial, industrial and investment property, as well as urban and rural land with development potential.
Hall contacted two established auctioneers to head up his new division: Rick Manley and Barry Cole, who were in the real estate and auction business as Cole Brothers' Auction Co. They merged with Hall and were then joined by William Walker III, Robert Richardson and Judy Wagner to create a team of five marketers.
``That's what the auction business is all about - marketing!'' Manley said. ``The old image of an auctioneer is a guy in a Stetson with cowboy boots selling off the end of a truck; but today we market a sale with brochures, color slides, video, direct mail and personal contacts. In fact, we recently spent $6,000 to promote the auction of a $2 million property.''
''We had one auction in the Roanoke Valley that drew people from 26 states,'' Walker said. "We got $80,000 more from that auction than the famous firm of Sotheby's had appraised the merchandise at. It was a two-day sale auctioning off elegant and valuable antiques."
``We have a great team,'' Manley said. ``Barry Cole is one of the best auctioneers I know, while Bill [Walker] and I enjoy being down on the floor one-on-one working the crowd with 'in your face' type of selling.''
Woltz, who became a licensed real estate broker 22 years ago, added auction skills to provide a more complete package of services to clients.
``We started selling farms, rural properties and small tracts of land within a 100-mile radius of the Roanoke Valley,'' he said, ``and I realized that every time we sold a farm or estate, some auction company then would come in to sell the personal property, which had to be disposed of to vacate the residence and farm building in connection with the sale.
"I thought, 'Why don't we become auctioneers, too, and we can then sell the whole package?' So I went to the Missouri Auction School in Kansas City, Mo. to learn about auctioneering and became a licensed auctioneer in 1977.
``At that time, we were only selling about 10 to 20 percent of real estate by auctioning, and the rest was conventional real estate broker contracts. The business stayed at about the same level until about five or eight years ago, when I began to realize that the auction business was getting to be much more sophisticated and that more and more valuable properties were being sold at auction nationwide.''
The firm now has among its sales force five licensed real estate agents who also are licensed auctioneers. Auction sales are conducted under Woltz's direction with backup from assistants Quinn Thomas, Boyd Temple and Bill Newhoff.
Being realty agents as well as auctioneers, the firm would seem to be in competition with itself, but Woltz believes that the best marketing method to use on any property has to be decided on a case-by-case basis.
``Before deciding to suggest auctioning a property,'' he explained, ``we first evaluate the property to decide: How broad is the market? How realistic is the owner about his price? How motivated is he to sell,and how much value is there to the owner to have the money quickly? Then we'll try to evaluate what the buyer pool is and use all this information as a guide to make the marketing choice.''
Woltz figures 60 percent to 70 percent of his real estate business now is auction sales.
Woltz also is chairman of the auction committee of the National Association of Realtors. ``I'm real involved at the national level in the movement to try to introduce and establish the auction as being an accepted method for the sale of real estate.''
One of the objectives of the committee has been to show Realtors how they can earn commissions by becoming involved. Many of the auction companies solicit broker participation wherein a broker will be paid a certain percentage of the sale commission if he properly registers the successful high bidder as his client and attends the sale with his client.
``We look at real estate auctions as a very legitimate way of marketing real estate,'' said Ken Kerin, a senior vice president of the Realtors' association. "I think the good thing about them is that you can probably unload the property a lot quicker and the sale is more certain to go through than some other approaches.''
One factor spurring brokers' interest is that the federal government has designated auctions as one of the acceptable methods for agencies to dispose of the portfolios of failed savings and loans and other institutions, so the S&L crisis has contributed to the rising use of auctions of foreclosed properties held by the government.
The latest measure of the impact of the auction industry comes from a Gallup Organization report prepared for the National Auctioneers Association showing that 11,000 active auction firms generated $161.7 billion in sales from all types of auctions in 1992.
The Realtors association is predicting that the face of the real estate industry will change dramatically in the next few years and that by the end of the decade, 30 percent of all real estate may be sold using the auction method.
by CNB