McClelland Minute - August 16, 2009

Sold to the Highest Bidder

Last year, in an effort to expand the ways in which we could serve clients, our Group decided to offer live auction, on-line auction, and land tender services in addition to normal real estate brokerage – Multiple Listing Service, exclusive listings, and buyer representation.  It’s been an interesting progression and certainly an education.  We have enjoyed establishing new working relationships with auction and law firms in the region; along the way gaining an insight into the challenges they also face in facilitating the trading of real estate.

Live auction of property has been around for many years.  Here in western Canada, an auctioneer standing in a wagon or truck box has always meant a crowd.  Some come to bid, others are just curious. Some auctions are unreserved; meaning that the vendor will accept whatever it sells for.  However, the buyer usually required to take the property as is, without having the opportunity to do in-depth inspections.  In these sales, there is often a requirement to place a non-refundable deposit equal to 5% to 10% of the sale price, with the balance due within a set time period.  Should the buyer not complete the transaction as agreed, that money forfeits to the vendor. 

“Forced” sales are prompted by non-payment of taxes or significant debt.  In these cases, the vendor may not be the original owner, so attaining fair market value takes a back seat to paying off what is owed.  While it is true that a bargain may be achieved at events like this, many times property auctioned under these constraints suffer from neglect or have substantial defects that will need to be corrected by the new owner.  It is definitely a “buyer beware” situation.

On-line auction is simply a technological extension of the live auction, allowing buyers to participate from a distance and at any time of the day or night until it closes.  We have conducted a number of these, but the most successful was for farmland.  I think most farmers these days are quite comfortable with the use of computers in their day to day operations, plus purchasing big ticket items at auction is old hat for them. 

In auctions commissioned for our clients, both live and on-line, we are simply striving to encourage motivated buyers to engage in the bidding process.  We use a “soft reserve” approach whereby we work up a written offer from the highest bidder just as we would if using MLS, and present it to the seller.  The vendor has the right to accept, decline, or counter the offer.  Upon acceptance, the buyer is given an agreed time period to achieve financing and conduct diligence on the property. 

Offering property up for sealed tender is useful when its value may be uncertain, or when the vendor would like to exercise control over which buyer and / or bid, if any, is acceptable to them.  Once used quite extensively, particularly by executors of estates, the trend today seems to be moving towards involving a Realtor in the discussion on the best method to market the property, thereby utilizing their expertise and knowledge of the local market. 

Southern fisherman used to say “there is more than one way to skin a cat(fish)”.  The same is true when offering land and buildings for sale.  The avenue used should address the goals of the vendor in a timely manner, yet respect who the prospective buyers may be and where they are located.

Vern McClelland is associate broker with RE/MAX of Lloydminster.  If you have questions or comments on this article or other real estate matters, he can be reached at 780.808.2700 or through the McClelland Group website www.mcclelland.ca

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