Larry Makowski is the founder of Express Auctioneers and has been an auctioneer himself for over 40 years. Larry shares some insider information about the real estate auctioning industry and talk to Jason Hartman about why people choose auctions, what he does to qualify auction bidders, and much more on the AIPIS show.
Key Takeaways:
1:40 – Some states have exemptions for selling real estate at auctions and you don’t need a license for them.
8:30 – There isn’t a set reserve price at the auction, so the seller can decline or accept an offer after the bidding process is done.
15:10 – Most buyers come the day of the sale and buy without inspecting the property.
17:30 – Larry is part of quite a few MLSs, but he says it’s necessary to get the needed exposure.
20:10 – According to an older statistic produce by the National Association of Realtors, 1/3rd of properties will be sold through auctions by 2020.
Mentioned In This Episode:
sellyourflips.com
Transcript
Jason Hartman:
It’s my pleasure to welcome Larry Makowski to the show. He is the founder and senor auctioneer of Express Auctioneers. I’m looking forward to talking to him about auctions today. I don’t think we’ve talked much auctions on the show, so this should be a good new topic. Larry, welcome, how are you?
Larry Makowski:
I’m very good. Thank you for having me.
Jason:
Give our listeners a sense of geography, tell us where you’re located.
Larry:
We’re based in Baltimore, Maryland, but our geographical area of selling is in mid Atlantic region from New Jersey down to North Carolina and have sold all over the country, but primarily at this moment we’re concentrating on the mid Atlantic region, New Jersey, Pennsylvanian, Washington, DC, Maryland, Virginia, North Carolina.
Jason:
Before we dive into it, you kinda made me curious when we talking about geography there. What kind of licenses, if any, do you need to do this? I mean, you probably don’t have real estate licenses in all of these states, right?
Larry:
It depends on the state. Some of them have exceptions to selling real estate at auctions. What that means is that you don’t have to be a broker agent to be able to do that. In Maryland, in Virginia, in North Carolina, you don’t need to be a designated real estate broker or agent to be able to do that. However, you only can do a transaction on the day of the auction. You can’t post sell it or pre-sell it unless you are a broker, but we’re generally licensed in all of those areas so we can pre-sell one or post sell-one if we aren’t successful on auction day.
Jason:
Right, okay, good. So, how does it all work? I mean look, the typical problem is someone wants to sell their property, they decide they’re going to either sell it with an agent or they’re going to sell it for sale by owner, but there’s really a third choice, right? And that’s what you do?
Larry:
That’s what we do. Basically when we come into play, what you see more and more now where some of us being the second choice, the alternative choice, for selling their real estate is their first choice. We have programs of what we call designations for where we train the realtor who wants to be involved with auctions to give us service to the client called real estate auction agent where they learn the basics of it and they’re able to discus it with their potential client by giving a presentation plan of an A plan, which is the traditional way of selling, or the B plan, accelerated marketing method, which is actually an auction.
So, for a period of time we train them so that they’re able to make a decision that they’re going to list it, get the listing, and if it doesn’t sell up at a certain period of time, instead of lowering the price, which takes away the amount of money that the seller will get, is talk to them about doing an auction sale and being able to sell it as is where is for cash, no contingencies, no cost for them because the fee that we charge split with the realtor is a buyer’s premium and we split that 50-50 when we’re successful at selling it.
Jason:
Okay, great. So, do they have to have an agent? I’m talking about the owner now. Can a seller just call you up direct and say, hey, come and auction my house off, I don’t have a real estate agent?
Larry:
That’s correct. They certainly can do that, they don’t need to have an agent at all. We originated the plan with the real estate agents about 15 years ago. We are the originators of the designation and the fact that the realtor can refer the property to us and end up getting a fee out of it. Sellers can come to us and they do come to us and usually referred to from their attorneys or somebody else who have been successful with an auction sale. They told them to come to us because they find that being able to sell it as is where is not having to fix the property up and put $10,000-15,000 in to be able to show it and list. With us, they can put it up for sale and sell it the way they had it the way they’re living in it right now.
Jason:
So, I just got ask you about the origin of this phrase, the as is, where is. I mean, real estate is kind of permanent where it is. Why do they say that anyway? I can understand saying, you know, as in, that’s great, that’s how every seller wants to sell, they don’t want to have to do anything, but why do you say as is where is just out of curiosity?
Larry:
Basically it’s the fact that when realtors list a house, they have to have the seller go through a form designating all the things that might be wrong with the property or that they knew is wrong with the property where with the auction we just have the buyer make that inspection and determine what they think is wrong with the property and the seller does not have to standup and say, oh, the roof is leaking or the backyard has a cracked sidewalk or the bathroom has some leaky pipes in it. As a general legal term that’s used a lot when they do foreclosures, you’re buying it as you see it. What you inspect and find is what you’re going to get.
Jason:
I totally understand that. I’m just questioning the where is part. I understand the as is part. Just kind of curious.
Larry:
It’s just a legal terminology that they use, that’s where it’s been picked up from.
Jason:
Okay. So, how much does this cost? I guess it doesn’t cost a seller more or does it cost the seller more money? Say they have a real estate agent, maybe they’re paying whatever percentage they’ve agreed to, certainty that’s negotiable. What does the auction do to that?
Larry:
The seller pays zero commission when we sell at an auction sale. It’s a fee, what’s called a buyer’s premium added on to the top bit amount, so when we do the auction prior to knock down, the bid may be $100,000 and our typical fee might be 10%. It would be a contract purchase price that reads $110,000 or $10,000 added to the top bid. Now, the seller benefits from this because he or she does not have to pay any transfer costs, doesn’t have to pay any inspections, doesn’t have to do anything to the property at all and so it is a net, net number to them. So, the $100,000, there’s no deduction. When you go to a regular settlement, contract might read $110,000, then you gotta pay the commission that you’re paying the realtor, you’re going to have to pay part of your documentary stamps transfer, taxes and things of that nature, and you may have to fix something up because of an inspection that was done at the buyer’s request.
Jason:
So you guys get paid through the buyer’s premium then?
Larry:
That’s correct.
Jason:
Okay and how much is the buyer’s premium?
Larry:
We generally use 10%.
Jason:
So, 10% and does that cover the real estate agent to or does it just cover you guys?
Larry:
That covers the real estate agent too. So, if the realtor refers it to us, we split the fee with them 50/50.
Jason:
Oh, okay. So in other words if there’s a listing agent that calls you up and says, hey, I’ve got this listing, I talked to the seller about it and we both agree that the best way to do this is via auction then you’ll end up, your company will end up with 5% and the listing agent will get 5%. Is that how it works?
Larry:
That’s true. We like to say 50% just so we don’t get into too much into the percentages.
Jason:
Okay, so can a selling agent, can a buyer’s agent bring a buyer to the auction? Are they going to get paid or is it really just you’re looking for buyers directly only?
Larry:
Well, we market it to buyers directly and we market it directly to the real estate community so if they happen to have a buyer – what you find today is a lot of people don’t really understand how to buy at an auction sale where they’re a little afraid of it, because they think the auctioneer talks too fast. So, they will contact our agent to have them inquire about the particular auction that’s going on for the real estate that we might be doing that time and we pay them a co-op fee being the buyer/broker 2% of the 10%.
Jason:
Right, okay. Sounds good. So, are these apps lund auctions or can they set a reserve price?
Larry:
95% of what we sell is subject to confirmation. What that means is there’s no real set reserve price is that we will take the bidding to the highest point from the audience and present the offer to the seller and the seller can say yes or no to that price. So for instance, if the seller is expecting a $100,000 and we knew that’s the target and we only get to $95,000, reserve the auction, going to the seller and say, hey, we have $95,000 bid as your net number, do you wish to take it or do you wish to reject it? If they say they’ll take it, we go back out and take the final bids and see if we can get any more and we sell it for that 95,000 + 10%. If they say they rejecting it, then we conclude the auction and then try to negotiate with the high bidder and see if that we can meet somewhere in the middle to get the satisfactory price for the seller.
Jason:
Right, so basically what the bidding does it sounds like is it opens up a negation, a final negotiation, right? Is that correct?
Larry:
That’s correct. What it does is bring everybody that’s interested in that property to the site to make their offers that day and the seller can make his decision that day as to whether it’s good enough for him to take or not good enough for him to take.
Jason:
Okay. So what happens with the multiple listing service, if anything, in this scenario? For example, I would assume too often is there will be an agent out there, they’ve got a listing on the property, the property is sitting, it’s not selling, and they’ll think, you know, let’s call and let’s try an auction. The property is already in the multiple listing service. What do you do with the MLS as it plays into the auction, if anything at all?
Larry:
Well in today’s environment, almost all the listings services around the mid Atlantic and around the country have a section on their MLS for auction. So, if the particular agent doesn’t want to put it under his name on that, we would do it under our name, because most likely we’re going to be a broker in that, but primarily we try to put under the MLS under the brokerage name, so that they’ll benefit from all the inquires that will come in who do not buy, they’ll obtain of list of prospective buyers of property. We’re strictly in, we’re not in the private treaty business at all, we only sell at auctions. So, we put it on the MLS either under our name or the broker’s name, we have to put a list price on there and we put a starting bid in the remark section saying this is an auction sale to be held on X day, broker co-op invited, starting bid is whatever we put the starting bid at.
Jason:
What is the starting bid typically? Like, say the property was listed at a million dollars and it’s worth, well, we don’t know what it’s worth until it sells, but let’s assume the agents and the appraisers it’s worth $900,000. So, where is the auction price?
Larry:
It’s generally 50% of what the last list price was.
Jason:
Oh, so you’re taking that property down to $500,000 on the day of the auction.
Larry:
Correct.
Jason:
Now, when do you do that? When do you change that price?
Larry:
Immediately when we start the marketing of the property under the auction.
Jason:
Which is about three weeks before the actual auction you’re saying?
Larry:
Yeah. That’s the minimum of three weeks.
Jason:
So, don’t you get a bunch of unqualified buyers showing up or don’t you get people complaining, hey, I think this house was $500,000 and really it’s not going to sell anywhere near that amount.
Larry:
No, they don’t. We don’t have too much problem with that. Very little as a matter fact, because what happens is it will direct them to call us or the agent and the agent will direct them to our website and the website will give them all the terms and conditions of buying the property at auction sale and what happens is they’ll see they have to put up a cashier’s check to be able to bid at the auction sale and that’s going to be about 10% of what the starting bid will be. So, if we’re doing a $500,000 property and we will be able to come qualified to bid on that property, you must have $50,000.
Jason:
Okay, so how do you collect those cashier’s checks. That would seem like, you really are only going to have serious people showing up at your auction if they got to have a check. Is this auction physical? I mean, they come to the property and you have a physical live auction?
Larry:
That’s correct, yeah. 90% of what we do is on site sales unless they have a condo. A condominium may have a restriction as to doing one auction on site. We will get a ball room close by where we’re selling a restaurant room and have people invited there and do auction from there if the HOA restrict auctions from being held on the property.
Jason:
Right, okay, but say you have it live, say it’s a single family home and you don’t have some illegal government, which is what I call HOAs, but say it’s a regular single family home. So, the people come and they show up, have they already mailed a cashier’s check for them to get into the door or do they bring that with them in their hand or how do you do that?
Larry:
Well, there’s two ways that it can do it. One is most of the people go to the website or they call the office and request what we call a bid packet and then the bid packet will be either emailed to them or mailed to them depending on what their situation is and that will tell them the terms and conditions of the sale and that generally will eliminate a lot of people who do not have the ability to put down a cashier’s check of $5,000-25,000 or $50,000 what it happens to be that particular property. So, that’s an automatic qualifier. As you know, today, most people try to buy with little or no money down or they have to get 100% loan or 95% or 70%, so it eliminates the general people who do not have the ability to get financing, because remember, this is an all cash deal. It’s not subject to financing.
So, they bring the check to their auction, they know beforehand whether they can do it or not do it and if they’re going to get financing, they have to go themselves or if they’re going to do it themselves or they can do it through the agent, get pre-qualified to be able to get a loan. They bring the money, our people who are registrations of the sale will verify that they do have the funds and then when they have registered that they qualified, they get a bit-card and able to go look at the property on the day of the sale. Now, everybody can pre-inspect the property by appointment. All they need to do is call their office, make an appointment, and they can bring their agent and bring their inspector, they can bring whoever they want to the site to see if that property is going to be worthwhile for them to be there to come down and buy.
So, they don’t have to wait till auction day to see it, but I have to tell you in my experience of almost 40 years, 90% of the buyers come the day of the sale and buy without pre-inspecting the property.
Jason:
So, why do you think that is? I mean, what is that tell us?
Larry:
Well, if you think about it, most people go look at it properties four, five, six of them in a day and then come back and say, let me see this one, and then they buy it. They don’t do a lot of inspection or looking at the property prior to putting a contract in because they have the safe guard. I’ll buy it subject to an inspection if it meets my inspection, I’ll take it. If it doesn’t, I’ll walk away from it. With the auction, they don’t have that opportunity.
Jason:
They can’t walk away in other words.
Larry:
They can’t walk away. They put down that cashier’s check amount and if they walk away from the property or don’t settle, then they lose it.
Jason:
Who do you think gets the best deal at an auction? Do you think it’s the buyer or the seller?
Larry:
I think both parties get a good deal. The seller gets rid of the property in a time that’s very good for them and the buyer gets the opportunity to buy a property for a little less or at a price he’s willing to pay knowing what he has to know about the property and the condition it’s in. So, I think it’s a win-win situation for both of them and it’s a win-win situation for the agents, because they don’t have to worry about closing because it’s going to be an automatic close in 30 days. They don’t have to take them to get financing. They don’t have to sit through termite inspection, they don’t have to wait for an inspection report to come back, there’s no way it’s going to be delayed. It’s a situation where it’s going to go 1-2-3 in a 30 day period, because they have 30 days to close.
Jason:
Interesting, okay. How many auctions have you done? I mean, how big is this side of the business? I’m just curious.
Larry:
I’ve probably done 20,000 property since 1974.
Jason:
Wow. Wow. So, you guys are mostly on the East Coast, but you’ve done them all over the country, right?
Larry:
All over the country including Puerto Rico.
Jason:
When you were talking before, we talked about the multiple listing service and you say sometimes you’ll put in the property in under your company’s name as the listing broker and sometimes it’ll just be the existing broker, but you’ll have that auction status listed in the MLS, so you have to be a member of whole bunch of different MLSs, right?
Larry:
Well, yes.
Jason:
That’s pretty complicated. So, you just maintain a whole bunch of memberships?
Larry:
Yeah, I have to pay a membership. It becomes expensive, but it’s necessary to be able to get the correct exposure and if we’re dealing with real estate brokerages, they already have it, we put it under their name as I had said before and so it works that way. We’ve been able to do a number of..we’ve been selling for private owners, we do probably two or three of those in a day depending on what the situation is and the geography of it and for investors we do multiple sales in a day for them because they will have four or five, six properties or two or three investors will get together and they’ll want to be able to get their costs down to be able to sell the properties. The main thing is the seller has to pay the marketing costs that’s involved in selling the property.
Jason:
With investor properties, can you sell them when they’re tenant occupied?
Larry:
Yes, we can. We just have to have a copy of the lease to see what the, so we can pass the information along to the buyer so they know what they’re buying, you know, if they’re getting a one renewable lease, a month to month lease, and what the terms and conditions are on those. We sell a number of investor properties that way.
Jason:
Yeah, very interesting. So, is your life, I mean, you have other auctioneers that work for you, I assume?
Larry:
Yes we do.
Jason:
They’re constantly traveling around, they’re on airplanes, they’re going to all these auctions, right?
Larry:
Yeah, not so much on airplanes, but pretty much driving to it, to the site, so it’s not all that difficult. Most of it’s into marketing and getting people there and you have to have a special, we’re working with realtors, we have them do the leg work as far as showing the properties if somebody wants to see it before the sale, so that’s all taken care of through the co-op, but if we’re doing a single property that we’re, the seller came directly to us, then we will handle that from beginning to end.
Jason:
What’s the best day and time to hold an auction?
Larry:
You know, I have not found any day that’s better than any other. The main thing we have to stay away from is holidays which will affect, vacation time which will affect particular buyers, because remember they’re only going to get a couple of days, weeks, out of the year to be able to go onto vacation. So, you want to stay away from particular area if it’s going to be impacted by people going on vacation. W
Jason:
Right.
Larry:
Where if it’s a holiday, it’s not a great time to be able to do it because especially around Christmas time, you know, like December 15th to January 15th. That’s probably the poorest time to be able to sell a property no matter where it is.
Jason:
Yeah, makes sense. How big is this industry? I mean, how many properties are auction versus sold traditionally?
Larry:
Well, I have an older statistic on from the National Association of Realtors that they had predicted that within the 2020, they’ll probably be 1/3rd of all real estate sold at auction.
Jason:
By 2020 1/3rd they’re saying, so that’s only 5 years away and do you know how much has sold that way now? Any estimates?
Larry:
I’d only be guessing, but it’s a pretty staggering amount right now.
Jason:
Good, good stuff. Give out your website if you would.
Larry:
One is for investors sellyourflips.com. That would be the one that will direct them to the other ones.
Jason:
So, sellyourflips.com for investors, right? So, a lot of investors that are constantly flipping properties, they use your service to sell them, huh?
Larry:
Yeah, if they don’t sell them right away. They certainty do, because the holding cost is what eats into their profit for a lot of them. They want to move it pretty quick.
Jason:
What’s next for you?
Larry:
Well, we’re expanding out to go over the whole country. We’re working the mid Atlantic area, so we’re looking to get our training program out to all the brokerages that have not been able to embrace the auction method and don’t understand it, so they stay away from it. So, what they have to learn is that when we do an auction for them, they’re going to get a 50/50 split of the fee, which basically doubles what they traditionally get right now when they go to settlement and a lot of them are shocked that they end up getting more than if they sold it themselves.
Jason:
Very interesting. Good stuff. Well Larry, thank you so much for joining us today.
Larry:
I appreciate it. Thanks for having me.
Announcer:
This show is produced by the Hartman Media Company, all rights reserved. For distribution or publication rights and media interviews, please visit www.hartmanmedia.com or email media@hartmanmedia.com. Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax, legal, real estate or business professional for individualized advice. Opinions of guests are their own and the host is acting on behalf of Platinum Properties Investor Network Inc. exclusively.