WHAT IS A MULTI-PARCEL AUCTION?

BUY THE PIECE

MULTI-PARCEL AUCTIONS GAIN POPULARITY

By: Harold D Hunt

 

The stars are aligning for a different kind of real estate auction. Multi-parcel or “multi-par” auctions divide large properties into smaller tracts that can be bid on individually or in any desired combination. While standard auction conventions still apply, multi-par auctions are more complex than traditional ones. The result is an auction that is more exciting for buyers and often more profitable for sellers.

HEIGHTENED INTEREST IN AUCTIONS

Much of the fascination with auctions can be attributed to the increasing popularity of eBay. A National Auctioneers Association (NAA) poll found that eBay has given consumers a positive impression of auctions, so much so that many say they would like to attend a live auction in the future. The survey revealed that about 57 percent of Americans have witnessed a live auction.

 

Real estate is the fastest-growing segment of the auction industry. According to NAA, 22.3 percent of gross revenues from all auction activity involves the sale of real estate. Gross revenues from land and agricultural real estate auctions increased about 7 percent in 2005.

RECREATIONAL, RETIREMENT PROPERTY DEMAND

As baby boomers enter their peak earning years, demand for second homes and recreational acreage is increasing. Multi-par auctions are designed to increase small-buyer participation, which benefits individuals looking for more affordable tracts (see “A Simple Multi-Par Auction”).

 

For example, assume the owner of a 2,000-acre ranch is considering an auction to dispose of the property. The number of qualified buyers willing to bid on the whole property may be much smaller than the number willing to bid on tracts of 50 acres or less.

 

Raw land is the most common property type sold through multi-par auctions, but properties with improvements may be candidates as well. In the example, a tract containing the ranch house and barn could be auctioned off as an individual parcel. As a result, the potential for real estate licensees to collect referral fees for registering multi-par bidders is much greater than it is with traditional auctions.

 

Auctioneers would like to deal with real estate licensees on every sale, according to Brent Graves of Alliance Land Auction LP in Amarillo.

 

“Auctioneers want to form alliances with local real estate professionals,” said Graves. “We typically offer buyer brokers a commission of 2.5 percent of their clients’ opening bids and another 1 percent of the remaining amount above the opening bid if they purchase anything.”

 

Carl Naylor, an auctioneer for the Dallas-based Mike Jones Auction Group, points out that multi-par auctions reap benefits for sellers, too.

 

“Multi-par auctions often help sellers obtain a retail price from wholesale buyers,” Naylor says.

 

If buyers interested in the whole property are forced to bid against a host of small bidders desiring individual tracts, the property should sell for more.

 

An alliance between auctioneers and real estate professionals works well on the seller side as well. “Real estate brokers have the local knowledge, and we have the ability to carry out a great deal of marketing in a short time,” said Graves. “We’ve spent anywhere from $8,000 to $72,000 marketing properties, and it’s hard for the real estate folks to commit to that level of marketing cost.”

 

Marketing the properties correctly is critical to the success of a multi-par auction.

 

As sellers become more aware of the advantages, the volume of real estate changing hands through multi-par auctions should increase, leading to more listings for sellers’ agents.

MANAGING COMPLEX BIDDING

Multi-par auctions have been conducted for more than a decade. The earliest auctions displayed tract combinations and high bids on a series of chalkboards. This method was effective for properties partitioned into only a handful of tracts, but the system was cumbersome when a large number of parcels were involved.

 

Today, multi-par bids are compiled on laptop computers using customized software. The bids are then projected onto a screen along with scanned maps of the property that display the high-bid tract combinations in real time. “Bid assistants” provide information to bidders regarding the current amount necessary to bid on a particular tract or combination of tracts.

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