Working with Buyer’s Brokers at Auction

December 16, 2015
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Professional auctioneers who are successful in business and life share a common trait – putting the needs of their sellers in front of their own...

Professional auctioneers who are successful in business and life share a common trait – putting the needs of their sellers in front of their own needs. As a professional real estate auctioneer, I often consider how effective a buyer broker can be in the different property types and markets we serve. Due to the individual property classes and the distinctive buying audiences we work with, real estate is – and always will be – a diverse industry.

When it comes to offering buyer’s broker participation and with our client’s property on the line, do we really have a choice ethically to exclude anyone from participating in a real estate auction? Is it in our client’s best interest to allow a buyer’s broker to participate in the transaction? When buyer’s broker participation is NOT offered at an auction, the driving factor is often an attempt to retaining more of the commissions earned, regardless of whether the commissions are coming from the seller or a buyer’s premium.

Commissions are obviously an important component to the success of any auction company’s fiscal health and ability to survive, however, this brings us back full circle to my question earlier, “is it in our client’s best interest not to allow a buyer’s broker to participate.” Many would argue that it is not advantageous for the client’s success and that it could even leave the auction company with a legal liability.

If offering a buyer’s broker participation fee at auction is in the best interest of the client, and healthy for the industry, then it also needs to be fair to the person doing all the work – the auction company. An auction company normally works on a fee (commission) based structure which should provide fair compensation for their services. Under normal circumstances, it is not reasonable to expect a company to give up a large percentage of their income once the majority of the work is completed.

Consider the following strategies which can encourage buyer’s broker participation and allow the auction company to retain their commissions earned.

  • Have a written opportunity in the auction listing agreement which allows the seller (client) to offer buyer’s broker participation for an additional percentage, provided they they only pay the additional fee if the buyer is properly registered and represented by a licensed broker/agent at the auction, and they successfully close the transaction. This allows the auction company to retain their full commission and provides incentive for buyer’s broker/agents to participate with any clients they may have interested in the offered property. If you offer buyer’s broker participation during the auction process, it is strongly encouraged that you develop a written buyer’s broker registration form with strict requirements which must be met in order for an agent/broker to receive the buyer’s broker fee.
  • Develop a Buyer’s broker incentive program. This auction tactic will enhance both your sellers’ opportunity to expose their property to more buyers and agents and also help the auction company receive higher starting bids. The program normally pays a higher buyer’s broker fee (commission) for any “written opening bid” amount and a reduced fee for any amount remaining between the written opening bid and the actual winning bid at the auction. This technique can encourage buyer’s brokers to help obtain realistic and aggressive starting bids for an auction.
  • Always put your clients’ needs first. Real estate markets can be distinctly different. For example, a rural agricultural farm and a metropolitan commercial building will have two completely different viewpoints on the viability of offering a fee to participating broker/agents. In theory, neither property type should be handled differently. Both property classes will normally have a client (seller) that wants to receive as much participation as possible to drive the sales price to its maximum potential. Unfortunately, when auction companies lose sight of this and put their needs in front of their clients, we are heading down the wrong path.
If offering buyer’s broker participation to area brokers and agents is to the benefit of the client, develop and implement a strategy that allows your sellers to offer these services while retaining your company’s commissions. Similar solutions are being used by successful auction companies on a daily basis. By collaborating with other brokerages, many are finding these relationships can drive even more opportunities in the future.

If you have an auction related question, please contact United Country Auction Services at (800) 444-5044. FIND YOUR FREEDOM