Auctions have changed a great deal in the last decade. Do you know what you need to know to represent your clients in this environment? Bob Floss II, real estate attorney at Floss Law, LLC in Northbrook, has spent the last 10 years representing buyers at auction and has a few pieces of advice for agents looking to get into this niche.
Chicago Agent magazine: You started working in auctions during the height of the recession. How have real estate auctions changed since then, and where do you see them going from here?
Bob Floss II: Real estate auction has become a broad term in our industry. We used to think of an auction as something conducted by an auctioneer at a special event. The Great Recession changed the public thinking to associate an auction with bank-owned or distressed buildings. Today we see a variety of properties that carry the label “real estate auction,” including a new wave of private investors and rehabbers using the platform to market their homes.
CA: So would you go so far as to say that auctions have become a marketing tool?
BF: There’s no doubt advertising a property as an auction will generate traffic. My client recently listed a rehabbed home as an auction to create buzz and attract an offer. While the agent was excited to have a couple hundred visitors to the open house, he was confused when a gentleman asked the price for a couch. The visitor thought they were auctioning off all the furniture in the home. In the end, the owner didn’t receive a bid to match his reserve, but the agent did walk away with about 40 leads.
CA: It sounds like you see a big gulf in terms of consumer education that needs to happen around auctions.
BF: It should come as no surprise to any agent that disclosure is important. I’ve found clients can become easily confused that an auction can mean different things. A buyer walking into a home doesn’t know if the property is bank owned, if they can perform a home inspection or if they have to buy it as-is. Will they have a mortgage contingency with an auctioned property? Will they lose their earnest money if the deal doesn’t close? The fact is, every property is different and agents will have to do their due diligence to answer all of these questions every time they are representing buyers who are considering making a property purchase through an auction.
Popular misconceptions also play into the education factor here. The public has been trained to associate auction with foreclosure. So any time the term auction is involved, the buyer will ask me if there are any liens on the property. An agent can make a buyer feel comfortable by answering the questions before clients have to ask. Be upfront on the terms of the auction and let them make an informed decision.
CA: How can agents find potential clients who are interested in purchasing property through auctions?
BF: The biggest source of auction clients for my practice have come from bidding websites. The bulk of properties are still auctioned off in person at judicial sale, but that process requires cash on hand. However, a fair number of properties are cycled through bidding websites that allow the buyer to place bids from their computer and allow up to 30 days to close. The danger with these sites is buyers often register for properties and bid with little to no research. They realize at the last moment they need a team to help them through the process. Many never call an agent or think to include their agent in the bidding process. When you encounter a buyer or investor interested in auctions, give them your card and get their email address. Follow up with them and don’t be surprised if you get a panicked call down the road. If you serve them well, they will value your help and keep coming back to you.