BLOG: Prepare for an Auction? Know the Market!

Prepare for an Auction?  Know the Market!

By Michael Landreth ALC

Auctions have become much more visible, viable, and frequent as a marketing option for Ranches in the last few years, and it could be good for you.  While they are seen by many buyers as an opportunity to steal a good deal, in fact they are not that simple, and the process could bite you badly if you are unprepared for this style of transaction.  So, how do you guarantee a good result from such a vague process where the price is not pre-determined to start?  How do you insure that you don’t “overpay” during the rush of the sale?  Simple, sort of… Know the market!

The Auction process is a short one, based on a definite date of sale, and completion of both marketing (Sellers) and diligence (You) prior to the date of the auction (sale).  To be able to take full advantage of the auction, you should have already been in the market, reviewing the market offerings, looking for what you want, before you discover the auction.  So, then you become aware of a property coming to auction that is of the type and size and location you seek, but there is no price listed… how much should you be willing to pay?  Are you ready to buy today?  Have you seen everything in the market that fits your basic parameters already?  Have you narrowed down your requirements enough to determine that this property at auction is the right one for you?

If you decide that you are ready to buy today, and that you have seen enough of the market to know what you want, and this ranch fits, it’s time to get prepared for the auction and set your price conditions.  To do this you will need to put the market in order and come up with a price you are willing to pay for the auction property.  One that’s high enough to give you a shot at a fair price, and you won’t mind if someone bids higher and wins, but low enough that you don’t overpay if you get it (if no one else bids, am I upset my bid wasn’t lower).  That’s the tricky part.  … Let’s ask the question: if you are outbid, but it’s still a great value, will you be sad you didn’t bid higher?  If so, then you should have.

At a live auction you are in the room with the other bidders and can compete by raising the ante on the spot; but at a “sealed-bid” auction at some remote location, the high bidder takes the prize with their best shot in the envelope.  It is not uncommon at auctions that a sale does not come from the bidding floor… for example in a sealed-bid auction, the sellers may get together with the top bidders, after opening all bids, and try to encourage higher bids to separate the high bidders after the fact.  In ALL cases you MUST know the market value for the property before you get carried away bidding.

So, How?  By analyzing every similar property on the market currently (size, location, price, improvements, Value Zone, price per acre, access and amenities, etc).  By analyzing every Value-Zone, by analyzing different categories, you will come up with a fair market price for what you are bidding on.  Proper analytics are worth their weight in gold at this point.  If you have seen everything on the market that is close to what you want, then you will know how to price your bid… you will already know a fair price, one that you would like to pursue. Then offer the best price you can, based on all that research about what else is available.  The goal can be a fair price or a steal, but regardless, you should be happy with the result of your bidding; either you take it home at a price you chose and are comfortable with, or someone else takes home the overpriced dog, and you continue your hunt for value.

{Michael Landreth, ALC, of Landreth Ranch & Land Co, and Partner at www.LandrethRanchList.com, is a Nationally Recognized expert on Colorado Ranch Properties, who works with Buyers only.}