2. Identifying Sellers and
Properties
• Understanding sellers, properties,
and market conditions for which
real estate auctions are best suited
• Applying the two-thirds rule
1
First Step in Auction Process
Analyze:
Seller
Property
Market Conditions
2
Analyzing the Seller
• Seller motivated?
• Property overmarketed?
• Previous price "labeled" the
property?
• Why has property not sold?
• Seller’s reputation?
• If not an auction, what do you
suggest?
Auction is a commitment and
requires investment from the seller.
3
NOT Good Seller Candidates
• Over-motivated
• Legal issues, eg, lis pendens
• Unrealistic expectations of the
property value
• Litigious
• Unwilling to level with you
• Multiple owners with differing
goals
4
Good Seller Candidates
• Have high holding costs
• Need immediate cash
• Are retiring
• Partnership or marriage break-up
• Moving out of the state
• Want to liquidate an estate
• Are auction minded
• Listing about to expire
5
Good Seller Candidates
• Never been listed
• Already purchased another house
• Know auction will bring true
market price
• Financial problems
• Time sensitive—“just want it
sold”
• Can’t/don’t want to maintain
property
6
Analyzing the Property
• Zoning
• Back taxes
• Tax assessment
• Equity and mortgage
• Property condition
7
Good Properties for Auction
Owner has:
• At least 25% equity
• A lot of high carrying costs
Property is:
• Unique
• Vacant
• Difficult to appraise
8
Analyzing Market Conditions
• Market conditions represent
buyer interest.
• At time of listing, market
condition must be considered.
9
Favorable Market Conditions
• Dull market—too much
product, some buyer interest
• Seller’s market―high demand
and a lot of competition
• Emerging market—kick off
sales program of new
developments
10
Consider Auction for All
Properties
• Residential
• Industrial
• Agricultural
• Apartment buildings
• Shopping centers
• Nursing homes
• New housing developments
11
Consider Auction for All
Properties
• Property in good condition and
desirable location usually sells.
• Even property that needs rehab
or construction can sell if there is
positive demand for it.
12
Negative or No-Demand
Properties
• Cannot be given away
• Examples are properties:
 Where list price
established the upper
limit
 Have been on the market
for a long time
13
Two-Thirds Rule
•
Used to analyze market, property,
and seller
•
If two out of three are favorable,
auction should be offered to seller
as a sales option
14
Questions to Ask
•
Answering several questions helps
determine if situation is auction
candidate
15
1. Seller’s Motivation
• On a scale of 1 (low) to 10 (high),
rate seller's motivation
Auction creates a sense of urgency;
important that seller feel comfortable
with this situation
16
1. Seller’s Motivation
Sellers more motivated when:
• Need quick cash
• Must sell property to finance another
• Under severe personal pressures
• Have high holding costs
• Have excess real estate
17
2. Seller’s Debt-to-Equity Ratio
• Estimate possible sales price, hard
costs, auction expenses, mortgage,
and other debts
• Establishes how flexible seller will
be in adjusting sales price
18
3. Lender’s Position
• Type of mortgage and interest
rate?
• Mortgage amount more than
property value?
• Lender willing to release property
for sale by auction?
• Lender allow assumption of
mortgage?
19
4. Seller Financing
• Makes a purchase more attractive
and affordable
• Consult with an attorney
• Also consider offering discounts
to buyers who pay cash
20
5. Property Condition
• “As is, where is”—without
warranties or contingencies
• Price should be only open issue on
auction day
21
As Is, Where Is
• Property sold with all faults, as it is
and where it is
• Buy what you see and do not see
“As is, where is” does NOT mean
caveat emptor. Full property
disclosures are required by law.
22
6. Demand Factors
• If strong interest in a property type,
better chance of achieving a good
sales price. For example:
 Last view lot in a prestigious
subdivision
 Prime highway location in
busiest commercial area of
town
23
Case Studies: Two-Thirds Rule
1. Read case study.
2. Analyze seller, property, and market.
3. Identify whether seller, property, and
market are positive (+) or negative () candidates for auction.
4. Apply two-thirds rule.
5. List advantages and disadvantages of
selling by auction.
6. Answer question "Would you
recommend auction for this case
24
study?" and explain why.
Case Study 1: Estate Sale
• Jan is moving into a nursing home.
• Husband died 5 years ago, and she
has not been able to maintain 125year-old house and 8 acres of land.
• Children need to sell estate to pay for
nursing home.
• Property is located 12 miles outside
town.
• Real estate market is soft.
• Neighbors have expressed interest in
property.
25
Case Study 1: Estate Sale
(+) (-)
Seller
(+) (-)
Property
(+) (-)
Market
26
Case Study 1: Estate Sale
Advantages
Disadvantages
27
Case Study 1: Estate Sale
• Would you recommend an auction
for this situation?

Yes

No
• Why?
28
Case Study 2: Business Loss
• Shanes own a home in NM and an
antique business in CA.
• Only have 6 weeks to sell home
• Adobe-style house in historic part of
town.
• Property appraised at $450K. Equity
is 40%.
29
Case Study 2: Business Loss
(+) (-)
Seller
(+) (-)
Property
(+) (-)
Market
30
Case Study 2: Business Loss
Advantages
Disadvantages
31
Case Study 2: Business Loss
• Would you recommend an auction
for this situation?

Yes

No
• Why?
32
Case Study 3: Strip Mall
• Been on the market for over 5
months
• Owner cannot keep up with costs of
managing property.
• Owner has 25% equity.
• Four out of six storefronts still under
5-year leases.
33
Case Study 3: Strip Mall
(+) (-)
Seller
(+) (-)
Property
(+) (-)
Market
34
Case Study 3: Strip Mall
Advantages
Disadvantages
35
Case Study 3: Strip Mall
• Would you recommend an auction
for this situation?

Yes

No
• Why?
36