How auctions benefit sellers

Businesses and individuals who need to liquidate unused assets can benefit greatly by selling those assets at auction. However, the auction method of marketing is often perceived as the last resort, and sellers believe they will not realize the true market value of their assets.

“That isn’t the case,” says Dick Kiko, CEO, Broker and Auctioneer at KIKO Realtors, Auctioneers, Advisors. “Just ask the buyers who go to auctions and lose out to another bidder. They lost the item because someone was willing to pay more than them, so it’s unlikely a seller will get injured at a well-run auction.”

To ensure that doesn’t happen, it’s important to find an auction company that’s capable of attracting interested buyers who are willing to compete, creating a strong market for the auction.

Smart Business spoke with Kiko about how auctions benefit sellers, how auctioneers serve as advisers and what to look for in an auction company.

Why should a company sell assets through an auction?

One of the exclusive benefits of an auction is that the seller sets the time and terms of the sale. The seller’s terms, which benefit them, are pre-established and displayed on sales day for the buyers. There is no negotiating, which puts the seller in a position of security. The buyers know that the highest bidder will get a clear and marketable title after they fulfill their commitment of paying.

Another auction benefit is the buyer’s premium. The seller uses the buyer’s premium, which is added to the highest bid to establish the purchase price, to offset the auction commission and other fees.

An auction is a big event that attracts interested buyers because there is no set price so everyone believes they could be the winning bid. The auction process is typically fast — 90 days from contract to close on real estate and even less with chattel (personal property). A conventional listed property, where the price is predetermined, eliminates many buyers before they even look and can take months for an offer to be negotiated.

How can sellers determine the best assets to sell at an auction?

Items sold at auction range from real estate to chattel. Their market value, based on market demand at the time of the sale, ebbs and flows with supply, demand and location. Obsolescence also impacts value. But everything has a price.

When a seller has assets they want to liquidate, they’ll call an auctioneer and ask them to take a look. But prior to even seeing the assets, there should be an in-depth discussion about the seller’s goals. Why are they converting these assets into cash? Once the goal is established, an auctioneer will then evaluate what is to be sold and calibrate the seller’s expectations against what the auctioneer thinks is possible, based on their knowledge of the market.

At that time an auctioneer will also determine the best approach for the auction. For example, they will review the assets to be sold and determine if they are worth more individually or as a package — is 30 acres worth more as one piece or as three 10-acre lots? An auction allows the seller and auctioneer to discern this by selling assets in sum or in parts, whichever way is best to achieve the seller’s goals and maximize the sale price.

What should sellers look for in an auctioneer?

Integrity, honesty, experience, fair dealing and a good reputation are the hallmarks of a good auctioneer. They should not be just an order taker, but someone who acts as an adviser to the seller. Both parties go to market together, and each has a hand in the other’s success. The auctioneer’s sale analysis and appraisal ultimately determine if the seller’s goal is realistic and how the auction should be run.

It’s also important to work with an auctioneer that has knowledge of the local market and the assets that are being sold as well as the marketing reach to attract the right buyers. Do due diligence to make sure the auctioneer is qualified and has a history of strong sales in the category of assets to be sold.

Insights Liquidity is brought to you by KIKO Realtors • Auctioneers • Advisors