Going Once......Going Twice.....................

I had a very educational and interesting coffee meeting yesterday morning with the president of a local auction company.

I walked away from the meeting very impressed with what he had to say about the benefits of using the auction process to market and sell real estate.

I like to think I am very good at what I do.

I am a commercial real estate broker, which means I broker commercial real estate deals for a living. If I don't broker deals, I don't feed my family.

All that being said, I don't determine the value of commercial real estate. Buyers and sellers determine the value of commercial real estate. I market properties and do everything in my power to flush the buyers out of their holes and get them to the negotiating table. Once I get a buyer to the table, I do everything in my power to represent my client with vigor, integrity, and professionalism.

Given the current state of the commercial real estate market, flushing buyers out of their holes has become a very difficult and time consuming process.

I believe this is for two primary reasons. First and probably foremost is the fact that capital has become much more difficult and costly to obtain. It's a simple case of economics 101. The supply of available properties has outpaced the demand, or number of legitimate buyers in the market.

Secondly, the diminished pool of buyers that are looking to purchase real estate are hiding in their holes and beginning to like the view from down under.

For example, the owner of a property here in Nashville that first put his property on the market last fall just recently dropped his price for a third time. The property is currently being offered at a 36% discount from the original asking price. If the owner is willing to cut his price by 36%, why don't we just wait and see if he'll cut it by 40% or maybe even 50%.

So, as you can see, sellers are stuck staring at a market with fewer buyers in deeper holes.

The real value of using the auction process given the current market conditions was recently explained in an article in National Real Estate Investor magazine:

Establishing value

Aside from a quick sale, auctions are also successful in establishing market demand and valuation for properties.

In a market where traditional sales volumes are down more than 70 percent in some regions, establishing value is one of the biggest challenges for both buyers and sellers. Fisher says he receives three to four calls a week from appraisers wanting to know what types of prices his firm has achieved with its auctions.

"In this market, pricing is illusive," Jones notes. "Through the auction process, you can find pricing because the high bidder sets the value of that property." Recently, United Country and Colliers International auctioned a resort hotel in Big Bear, Calif., after a traditional marketing approach failed. Previously the property had been listed at $8 million, and it sold at auction for $10.3 million.

"When you get people in a room and get them revved up, you may be able to generate a higher value," Duffy says.

Is the auction process for everyone? No.

Is it always the best way to market and sell property? No.

Are there additional costs associated with the auction process? Yes and no depending on your understanding and interpretation of opportunity cost and the time value of money.

In the end, auctioneers probably never want to deal with brokers and brokers never want to deal with auctioneers. However, business is business, and we are all in the business of making deals.