Billy Burke, CAI - AARE

Today I was contacted by a real estate auction buyer with the question;

What's the purpose of a reserve in an auction?

To me, why waste time conduction an auction is all bid are below the reserve?

We have FAQ's but for some reason nobody has ever asked this question before and I tool a few minutes to write a response that I think could be helpful to many of the ActiveRain.com readers.

Dear Mr. Real Estate Auction Bidder:

That's a good question and I am going to put it in my FAQ's

http://www.jacksonholeauctions.com/faq.php

The purpose of a reserve price in an auction is twofold.

First: The ONLY legal way to advertise a property 'Absolute or unreserved' is if the seller is ready to complete the transaction to the last and final bidder regardless of price .

This works well with free & clear properties but if a seller / owner has a mortgage they must be able to pay it off out of pocket if the high bid comes in below the reserve price.

The fact that one must provide a certificate of release to professional real estate auctioneers (not bogus ones who advertise absolute OVER a retail price) if they have a mortgage knocks most people with loans against a property from selling absolute.

The other reason property is sold with reserve is:

Its the only way yo get the auction listing, the seller wants either some sort of protection or they think they are smarter than the marketplace.

I sell a lot of high end waterfront and resort property here on the East Coast and around the country.

I deal with a *LOT* of high net worth individuals who can pay cash for anything they bid on at our auctions. They won't even come to an auction if its with reserve or think the seller is playing games.

One of my buyers lost out on making a million dollars neat from an auction because it was sold with a very reasonable below market reserve & the time of the auction was the same as his sons little league game.

Personally I have had days where I would blow off a million to spend time with my kids so I totally understand.

Another guy who was very interested in a nice beach house told me he would rather play with his dog at home than get dressed and go to an auction where he would be the high bidder but the seller could turn him down.

Ask any auctioneer and they will tell you that they will take an absolute auction over an auction with reserve any day of the week, but they are hard to find.

That is why we keep our reserve "secret" and let everyone know we will annouce if it has been reached right there at the auction. If the high bid is below the reserve we write up the contract and hold the deposit check uncashed, then give the seller two business days to accept or reject the high bid.

I call it a reverse rescission for sellers.

It started when we had a killer waterfront home in June of 2006 that comped right at $1 million any way you looked at it, except recent sales. But there had been no comparable sales for almost a year and the sellers' wife was a REmax agent.

She told me we had more activity in the first 7-days of auction marketing than they had seen in the past 7-months of her marketing with REMax.

There were 145 people at the auction and a 7-registered bidders for that property, the reserve was around $800,000 so I thought it was reasonable... going into the deal.

Auction day the high bid was $660,000.00 and the seller came out and started cussing out the crowd, you dumb Mother F*ckers you know what its worth, half of you are realtors... blah blah blah.

Two days later he said they would take the $660,000.00 but I had not written up a contract because it was not our policy at the time.

I called the buyer and they said there was no way they would do business with someone who talked to them like that, same answer from the second high bidder.

That was when I stopped allowing sellers to attend their own auctions and started the two day rule.

Also if they refuse the cash we charge a painful no-sale fee of $2,500 or 4% of the difference between the cash market value and their wish sandwich price.

If you watch the Barrett Jackson car auctions on TV this week none of those autos are sold with reserve anymore. I know their lead auctioneer and his wife, they told me they used to charge "just" the seller commission of 8% as a no-sale fee until it started driving the prices down.

Spanky Assiter Hammered down a Shelby Cobra last year for $5 million plus 8% Buyers fee absolute with no reserve setting the highest price for a car ever for Barrett Jackson Auctions.

But the bottom line is the reserve is to either protect the sellers' position or to make the auction legal.

Your best bet especially since you are in California is to have the title company run a preliminary title report, then do the math on the mortgage to see how much the sellers owe. If it's more than you want to pay then stay home and play with your kids or the dog.

Sincerely,

Billy Burke, CAI - AARE Auctioneer

billy.burke@paxauctions.com

There has been a thread on the National Auctioneers Association forum for the past few weeks titled:

What is so great about blogging on ActiveRain.com?

I had been watching this thread and reading the responses but waited until today to post my own. Since the forum is private for members only I cannot post the contents of the thread, but I will say that the comments from the auctioneers who blog here have been VERY POSITIVE and created a few converts.

Here is my response from this morning:

I have been waiting to post a reply on this thread since it came up.

There are a lot of reasons for an auctioneer to blog on Activerain.com.

Some of you may think I am a realtor hater but that is really far from the truth, I simply have a low level of tolerance for incompetence and many realtors are incompetent.

Face the fact that 90% of agents jumped on the real estate bandwagon during the past ten years and all they had to do to sell property was to show up, install a sign and post it on the MLS. Its the part timers, housewifes and people who don't know a thing about the business that get my goat and also that of the true professional agents in the marketplace.

Last night I posted a property that we are selling at Internet only auction.

It went up on three of my websites, the NAA Calendar, Auctionzip.com, AuctionServices.com then I posted it on Activerain.com.

http://activerain.com/blogsview/872467/ABSOLUTE-INTERNET-AUCTION-BALTIMORE-ROW-HOUSE-NO-MINIMUM-BID-NO-RESERVE-PRICE-TO-BE-SOLD-TO-THE-HIGHEST-BIDDER-REGARDLESS-OF-PRICE

There was a response from Activerain.com within 5-minutes of posting, before I had even logged off the site or my computer for the night.

This morning there was another response / inquiry about the property with some positive information about the area I simply could not have known.

In checking the groups I had posted this on (in addition to my AR blog) I found this question posed:

http://activerain.com/blogsview/869583/An-Expired-Listing-What-would-you-do-if-you-were-me

An agent in PA asking what to do about a listing that is expiring soon for a property that has been on the market for close to 4-years.

FOUR YEARS ON THE MARKET AND HE IS ASKING WHAT TO DO?

There were 63 comments from realtors around the country since this had been posted on January 7th and 2 of them suggested using an auction or auctioneer.

I saw this as a great opportunity to "farm" for the auction listing and since the property is in Omar's back yard to maybe earn a small fee for simply farming the deal and handing it over to Omar Bounds, CAI - AARE to do the auction.

I have gotten a lot of buyer & seller leads from blogging on Activerain.com over the past few years. In addition to getting leads, by blogging there it makes me the "resident expert" on real estate auctions to the local agents who use the site. (because I AM THE resident expert on real estate auctions)

There are a lot of networking opportunities if thats what you are into but I am looking for buyers or sellers, or to establish relationships with agents who need my help to sell their properties in this market.

Blogging on Activerain.com is one more example of how a creative real estate professional can generate business through a social networking site.

I am a full time real estate auctioneer and one of less than 350 people in the USA who is certified as an Accredited Auctioneer of Real Estate by the National Auctioneers Association and would like to comment on the foreclosure crisis.

5,300 American families are losing their home to foreclosure each and every day; it's a fact not fiction.

Every property that is foreclosed must be offered at a mandatory foreclosure auction. That's right 100% of the properties going through foreclosure must be offered at public auction, yet the foreclosure process is broken at the auction and can be easily fixed.

I would like to make the public and government aware of the fact that the foreclosure process is broken at the initial mandatory public auction, because professional certified real estate auctioneers are "locked out" of the foreclosure auction process due to contract bundling and depression era regulations.

That's right the mandatory foreclosure "auctions" of which 100% of the 5,300 homes being lost by American families each and every day are not conducted or produced by professional auctioneers.

The foreclosure auctioneer service is "bundled" into legal or loan servicer contracts and these "auctions" are conducted by people who are not trained and have zero motivation to actually sell these homes to new owners.

During the past two years just about every property we have "sold" at auction has been turned down by the banks & lenders because the sales price is less than what is owed on the property and the people delivering $75 BPO's backed them up with 6-month to 1-year old "comps".

Every property that we have auctioned that has been turned down has ended up selling for much less, usually $100,000 or more less than we delivered at auction, with most still on the market 1 to 2 years later.

Did you know that if the efficiency or sell through rate of the mandatory public auction required to foreclose on a property increased just 1% it would mean a savings of $15 to $20 Billion dollars a year to the American taxpayers?

I am a small business owner and properly registered & certified as a federal real estate auctioneer contractor. I personally have been trying to get the attention of Fannie Mae, Freddie Mac, HUD, Treasury, OMB and the SBA to "unbundle" auctioneering services from the contracts associated with federally insured loans for the past 8-years.

My pleas and petitions for change have fallen on deaf ears because no one person wants to "rock the boat" changing the way things have been done since the great depression.

Every day we hear on the news and from the government about the national "foreclosure crisis" yet nobody is aware that the regulations governing the foreclosure of real estate have not been updated since the "New Deal" legislation of the FDR Administration.

There is no conspiracy or group trying to maintain the status quo; it is more of an awareness issue that nobody is really aware that professional real estate auctioneers are locked out of producing foreclosure auctions. The professional real estate auctioneers are 'inclusive' of realtors offering buyers agency commissions as an incentive to actually sell the property instead of sitting on it churning fees for property maintenance and management companies.

If there is one single line item I could ask the government or bank regulators to change, it would be to update the regulations about how foreclosure auctions are performed from 1930's standards to 21'st century standards.

I have been researching this subject for almost 10-years and can quote or show chapter and verse where this is happening each and every day of the week.

2-million American families are facing the loss of their home through foreclosure in the upcoming year and allowing professionals, who are trained in the process, will save the taxpayers billions of dollars and allow the families who are losing their home to move with dignity.

Note to whomever reviews this: Please pass this to everyone you know and your Congressman or Senator, I can pretty much guarantee that if you ask anyone about who produces foreclosure auctions (not the REO auctions of property that has already been foreclosed and is now bank or government owned) they will tell you they did not know that professional auctioneers do not conduct these auctions.

100% of property being foreclosed must be offered at public auction, allowing professionals to conduct the 5,300 auctions a day will deliver better results.

By spreading this message we can instill change right away and this is a change for the better that will save the taxpayers billions, eliminate blight in communities and restore human dignity to families losing their home to foreclosure.

Remember the Golden Rule of Loss Mitigation: The first loss is your best and least expensive loss!

In the fourth quarter of 2007, Prince George’s County reported 2,732 foreclosures, the highest in Maryland. However, during the 4th quarter in Prince George’s County only 1279 sold according to the MRIS.

Basically, the number of foreclosures was double the number of houses that sold.

You don't hear the National Association of Realtors talking about figures that while they run ads on TV saying real estate ALWAYS goes up in value.

The housing bust in the Washington, DC area is far from over.

This year a rising inventory of foreclosures will put significant downward pressure on prices.

People here on the Eastern Shore think that they are ’special’ and while property values are dropping everywhere else things are still going up here. The reality of the situation is the bubble on the shore peaked November 2005 and property values have dropped 40% to 60% across the board.

C’mon who is going to pay $80,000.00 for a Pocomoke City lot in White Oaks next to a stinky clam processor and the train tracks? $485,000.00 for a rancher outside Salisbury or Berlin in what was a soybean field two years ago?

People who are selling homes just need to get real and stop sucking on the crack pipe of phantom equity. Two foreclosures for every one ‘regular sale’ is a sad statistic and could very easily take root right here on the Eastern Shore if people don’t get a grip on reality with prices or simply sell for auction e.g cash values.

The list, price, hold & defend that price method is broken, it can't be fixed and will soon be dead and gone the way of the Dodo bird.

The public wants open transparent real estate transactions, just like they want open government.

There are alternatives to foreclosure and Maryland is leading the nation with legislation to require lenders to report on their loss mitigation programs, but for many homeowners its simply too little, too late.

If you are one of the many who cannot make their payments you do have options, call your lender or visit the Maryland HOPE website