Memphis, Tennessee broker and auctioneer Landis O. Foy, Jr. believes that there are two kinds of sellers - those who want to sell their property according to its true value and those who sell according to what they want out of it.

What is true market value anyway, and how can it best be determined?

Explains Foy. "When I first began in the real estate industry in 1971, an instructor taught me the definition of market value - 'what a willing buyer would pay and what a willing seller would take' and that 'market value could be determined by gathering recently sold comparables of property in the same area'. I have found neither to be correct: what one person will pay or a seller will take and the price for which other properties have sold in the past with their own set of circumstances for each buyer and seller have nothing to do with present market value. At best, each are only guides."

According to Foy, the best way to determine true market value is through an absolute auction - an auction in which the seller has no reserve (a minimum that they will accept for their property.) He believes letting the marketplace establish value brings more to the seller.

"If the seller has the right to refuse the highest bid or has a minimum price set in prior to the auction," says Foy, "bidders will not all come to an auction where the seller still has control. If they do come, they are unprepared in many instances to bid, since they were not sure if the property would sell at all."

Many sellers believe that auctions will net less for their property than it is worth, a notion Foy says is a myth.

"I sold acreage in Madison County, TN, for almost $7,000 an acre which had just been appraised for $2,500 an acre," boasts Foy. "It had never been on the market, and the Realtor who invited me in the transaction made his client $370,000 more than he would have received if the Realtor had placed the property on the open market for $2500 an acre."

If auctions are so lucrative, why don't more brokers suggest auctions for their clients' properties?

"The seller decides how to market the property," says Foy. "If a seller would like the value and they don't want to risk overpricing and selling it in a second, then auctions aren't for him."

But brokers can work well with auctioneers. "I have an associate in Jackson, Tennessee," explains Foy. "When he has a client that fits the mold of an auction, I explain the procedure, and we work together. Any Realtor in the world with an appraisal from a reputable appraiser will typically go with the appraiser. How many agents would say, 'I want you to talk to somebody else.' He understands the way we work, and we were able to get his client more than he wanted. That's the beauty of it, It has to fit the posture of the seller. They have to want value, not a certain price. If the property had been appraised for $610,000 and it sold for $238,500 the seller would have been disappointed. When I got him $600,000, he thought I got him more than it was worth, but I didn't."

There are a lot of misconceptions about auctions, and lot of fear about them from the brokerage industry, says Foy.

"The reason is that people are poorly informed," says Foy. "And brokers like to be in control."

"The primary difference between a properly conducted auction and the traditional manner of marketing real estate is the auction procedure will attain fair market value on a given date," he says.

According to Foy, true market value can only be attained when all the following circumstances are right:

• the seller agrees to accept the highest bid on auction day with no minimum or reserves sales price
• the title is researched and the survey work completed with the corners all visibly marked
• the market has been enticed to the auction to be held at the site
• that property is to be sold only, and it is not included in some multiple property sale in some other location diluted by all the other properties and group advertisements
• the market is assured that the property will sell if it sells for a nickel or a million dollars
• the property is offered in multiple tracts where the smaller tracts will bid as a group pushing the complete tract bidder higher than he might otherwise go
• the bidders are placed in a competitive bidding situation where, at the end, there is only one high bid standing with all the others fallen away with no other efforts to bid.

  "That is the ultimate in attaining true market value," he says. "It's better than Internet bidding where at the last second someone bids once more leaving bidders desperately trying to bid while the clock runs out. It's better than traditional marketing where a price is set from one of a thousand reasons, and the property is either underpriced and usually selling very quickly with no one having any idea how much they left on the table. Or it is overpriced, and the property doesn't sell at all leaving the seller to continue to reduce his price again and again until someone finally buys it after the value has been substantially damaged throughout the process."

  Why should brokers be interested in using an auctioneer?

  There are some advantages, according to Foy:

  • they can offer their client true value
  • the property will sell on a certain day guaranteed
  • a property can be divided and offered in several pieces without the fear of damaging the value of the remainder since it all will sell on auction day whether in pieces, combinations, or as a whole
  • aAuctioning is reasonable, the auction company shares the real estate commission equally with the listing Realtor's firm with no expense with the understanding that the listing Realtor will assist in preparing information for the auction and in marketing the sale itself."

  I've been auctioning for over 20 years," says Foy. "I've never had an absolute auction fail to close."

Published: November 20, 2002

Use of this article without permission is a violation of federal copyright laws.

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