VELOCITY ARTICLES

02.16.2009
Auctions Creating Sense of Urgency and Moving Inventory
Nation’s Building News, Tamsin Ayre

Auctions are one of the more successful ways to move inventory in today’s down markets and create a sense of urgency among potential home buyers.

“The business is a counter-cyclical one and, therefore, is busy when the real estate market is down,” said Sue Hawkes, president and CEO of The Collaborative Companies, which runs its own auction division, Velocity
Marketing. “Auction programs are a terrific complement to a real estate marketing company, since many of the same principles apply.”

“An auction establishes ‘the bottom’ — the number a buyer or multiple buyers are willing to pay,” says Hawkes. “Rather than weekly price reductions that create distrust in the marketplace and subsequent paralysis,
an auction gives the market the opportunity to establish the value.”

Tom Vetter, West Coast president for Accelerated Marketing Partners — a real estate marketing and consulting firm that offers auction campaigns among its services — says that preparations for a typical real estate
auction can start about two months prior to the live auction date.

During the first month, the company putting on the auction develops and produces materials — such as brochures, advertising, e-mail blasts and press releases — to attract potential buyers. The preparations also
include securing media coverage of the property, conducting open house tours and answering the questions of potential buyers.

The auction company usually has its staff working with the builder’s marketing and sales teams anywhere from four weeks to seven days before the auction takes place, depending on the marketing campaign. In this
reverse sales process, the auction company and the property’s sales team are there to explain and inform, not sign. This takes the pressure off of the staff and the buyers.

“Basically, one year's worth of traffic visits the site in a four-week period, clearly speeding up the process, creating urgency and a ‘date certain’ for performance,” explains Hawkes.

Live auctions also provide an easier financial process. Since the buyers do their due diligence beforehand, the builder and lender can discover any credit issues ahead of time, before the buyer has even put in a bid.
This process can cut escrow time down to as little as 20 minutes.

The benefits of the auction can also extend to homes that don’t sell during the live auction. “The ultimate value for a seller who does not sell out at auction is to sell the remaining units in a strategically positioned program, ‘post-auction,’” explains Hawkes. “This combination provides the ultimate sales package, maximizes the return to the seller and controls and minimizes the risk that a straight, conventional auction cannot.” Auctions clearly provide great benefits to both builder and buyer, but what about all the foreclosures now on the market? Vetter says that the new home auctions yield buyers a better deal because buying a foreclosure usually means facing the cost of repair or remodeling. Many foreclosures have been damaged by previous occupants or by simply sitting vacant for months. Many homes can shrink without climate control and can experience problems after the utilities are turned back on again. New homes, on the other hand, still have their builder warranties to assure bidders of quality and to protect buyers from any unexpected problems.

Online auctions are another alternative some buyers have turned to. However, Vetter says that it is much harder to create the sense of urgency of a live auction, even with streaming video. “Nothing replaces the
excitement and opportunity of a live auction,” agrees Hawkes. “Much of the success of an auction depends on the synergy created in the auction environment.”

While live real estate auctions can provide a good solution for builders who want to move inventory, as with any consultant, builders should be sure to get references when hiring a company to stage an auction. Some have been involved in lawsuits, so it is important to do the homework.

For information on sales and marketing resources available from NAHB, e-mail Tamsin Ayre, or call her at 800-368-5242 x8673.

<<