Auctions are a powerful tool to take assets to market and connect with highly interested buyers. And their long history of quickly converting assets into cash has put them in the spotlight.
“At a time when there’s a great deal of uncertainty in the market, many businesses need cash,” says Dick Kiko, CEO, Broker and Auctioneer at KIKO Realtors, Auctioneers, Advisors. “In order to do that, they need to connect the right assets to the right buyers. Auctions are and have been a valuable tool to accomplish that task.”
Smart Business spoke with Kiko about auctions and how they’re driving value for sellers at a time when cash is invaluable.
Why should sellers consider using an auction to generate liquidity?
Anything can be sold at auction — land; residential, commercial and industrial property; heavy equipment; vehicles; etc. Before the internet, auctions were largely local and regional events, drawing only on-site participants. Luckily, over the past several years, and more so during the pandemic, auctions have incorporated a virtual component for internet bidding while also accommodating on-site bidders.
Now, auctioneers are selling properties to bidders across the globe via online auctions. That means sellers are able to get their assets in front of a lot of interested buyers, which creates competition and ultimately drives up the sale price.
What’s the risk that an asset is sold at less than market value at auction?
While an appraisal is an estimate of the price an asset could potentially command in the open market, what someone is willing and able to pay is an asset’s true market value.
An auction attracts interested bidders and they compete for each item, setting the market value through the competitive bidding process. So, for an asset to be sold for less than market value at auction, it would have to be a poorly marketed and attended auction — one that failed to attract the right buyers for the items being sold.
A good auction firm makes sure the right market is represented at the time of the event, so interested buyers compete, thus driving value for the seller. If you don’t believe this to be true, then you really don’t want to sell your asset for market value, you want to sell it for what you hope to get — the appraised value. The truth is, more auction sale prices exceed sellers’ expectations and appraised value than don’t.
What does the auction process look like in practice?
The assumption is that auctioneers are just fast-talking bid-callers, but that’s only one aspect of it. Auctioneers work with sellers as advisors to identify their goals, determine which assets have the best chance of selling and how to best present them to drive interest and handle the auction logistics. It’s a very well-thought-out process.
An auction firm needs to have a thorough understanding of the real estate property or items being sold so it can expose them to interested buyers, much like any company works to attract buyers to its goods and services.
The key to a successful auction is marketing to create visibility in the marketplace. Marketing strategies — including signage, print media, direct mail, email blasts, social and digital media, internet ads — are deployed to attract the right bidders. It’s important to work with an experienced auction firm with a track record of success; otherwise, there is a real risk of not achieving maximum value through a sale.
Most people think auctions are only for bankruptcy or foreclosure. Nothing is further from the truth. Auctions help businesses and individuals expedite a sale, generate liquidity and create competition, which leads to higher prices for sellers. But it’s important to work with an experienced auction firm, one with a track record of success. Otherwise, there is a real risk of not achieving maximum value through a sale.
Insights Liquidity is brought to you by KIKO Realtors • Auctioneers • Advisors