Steve Smoot wanted to sell his house quickly, but he didn’t want to hire a real estate agent, or sell it on his own. Instead, he opted for an auction, a method Smoot knew well through his cattle-business background. Auctions are still uncommon in the residential real estate field.
“It’s an ideal situation for somebody (who) really wants to move something quickly,” said Smoot, who sold his aunt’s Bakersfield, Calif., house after she died a few years ago.
Just 30 days after deciding to use an auction, Smoot finalized a deal, and had a check in hand and no regrets about his choice.
As the president of Pacific Auction Exchange, Jim Pennington hopes the auction concept catches on in the Western U.S. as it has in other parts of the country. His company – PAX for short – no longer conducts auctions on its own, but instead sells franchises to people interested in starting an auction company.
Long viewed as the domain of only distressed properties, general real estate auctions face an uphill image battle. More popular in some parts of the country, particularly the East Coast, non-distressed house auctions are a fairly new concept to the West Coast, Pennington said. That means one of the biggest challenges to building a successful auction business is educating people.
Raised around livestock and the accompanying auctions, Pennington continued in the auction business as an adult. He won several prestigious awards for his bid-calling skills and in the late 1990s, he joined fellow auctioneers to start an auctioneering school. The Bakersfield-based course drew the expected students with a livestock background, but it also attracted a group Pennington hadn’t anticipated – East Coast real estate brokers.
Pennington knew real estate auctions existed, but assumed they were only for distressed properties. His students informed him that wasn’t true. Intrigued, he looked for California real estate auction companies, but found none serving the niche of non-distressed properties.
“I thought, I’m going to give this a shot,” Pennington said.
With no real estate experience other than owning a few properties, Pennington leaned on his auction background to get PAX started in 1999. A former auction school student quit his real estate brokerage in Kentucky and moved west to join Pennington in the real estate auction business. Chuck McAtee is now the company’s CEO.
In its original form, PAX was an auction company, marketing properties and then conducting the auction sale. As the company held more auctions, it attracted people interested in running their own auction businesses, pushing PAX into more of a franchisor role, Pennington said.
PAX, which now has 21 franchises throughout California, Colorado and New Mexico, has auctioned off more than 200 properties since the company began. Pennington hopes to have 100 franchisees within the next five years, with the ultimate goal of reaching 1,000.
Pennington knows the auction process isn’t for every home seller, but he estimates that auctions could attract 5 percent of total house sales, from condos to single family homes. That interest, he said, will come as more people see non-distressed – or choice, as he calls them – auctions going on in their neighborhoods.
After a seller contracts with PAX to auction a house, the company sets an auction date and markets the property for about three to four weeks. The seller pays for the marketing, which can vary widely depending on they type of property and where it will be advertised, Pennington said. That’s all the seller pays, however.
On auction day, potential home buyers compete against each other in a bidding process. All disclosures are laid out ahead of time, and the winning bidder must close the deal within 30 days, either with cash or a loan, with no contingencies. Buyers also pay the commission cost of 10 percent. For sellers, that’s one of an auction’s big advantages, along with the speedy sale.
For buyers, Pennington said, the advantage comes in knowing immediately whether they get the house. And because all disclosures are done before the auction, there are no surprises for the buyer.
“It’s kind of a cut to the chase way to sell property,” Pennington said.
And, as Pennington is quick to point out, it’s a method that is used in other countries to sell real estate, and within the United States to sell all sorts of things of value, from art to cars. Understanding that background could help boost auctions’ popularity, Pennington said, and the idea that auctions can create high demand for property even in a slow market also could help.
Smoot learned that firsthand when he sold his aunt’s house three years ago. The Bakersfield market at the time was a far cry from the market it is today, with properties taking awhile to move.
“The old saying about auctions, and it doesn’t matter if it is real estate or agriculture or industry, is that auctions are good in good times and great in bad times,” Pennington said.
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