When an auction is the method for negotiating and setting the price of a property, the agent needs to learn the behavioral differences and modified thinking specific to the auction environment. Thus, the agent must acquire experience in the fast-paced and intentionally emotional auction sale universe to be of meaningful assistance to a buyer at an owner’s auction. The best way for an agent to gain invaluable first-hand experience is to educate and train himself in the auction process by attending at least three auctions each held by different auction companies prior to representing a buyer for a fee.
While attending an auction for the education, the agent must be alert and engaged, taking notes on the interactions and practices of the auctioneer and his criers handling the auction. He should also engage with the listing broker and attendees before and after the auction. Points to discuss include:
- how they feel about the auction environment;
- what they think about the subject property;
- how they conducted their property investigation;
- the purchase contract and assorted addenda used by the auction company and listing broker; and
- how thorough are the disclosures provided by the listing broker and the impact those disclosures have on the buyer.
The agent needs to gain personal experience navigating the practical requirements of auctioneers, such as registering to bid, bidding procedures and policies. After attending three to four auctions and completing his observations, the observant agent will be sufficiently well-versed in auction practices to properly represent a buyer.
Pre-bidding: due diligence investigation
Before bidding on or inspecting the property at an open house, it is the role of the buyer’s agent to assist the buyer by conducting a due diligence investigation of the property. Without knowledge of the conditions of the property’s physical, title, operating, natural hazard and neighorhood conditions, neither the agent nor the buyer can gain the knowledge about the property’s many conditions which may adversely affect its value sufficient to form a concrete sense of the property’s value.
The agent’s due diligence investigation includes:
- contact with the listing broker to get information on the property and determine what he knows about the property’s condition;
- NHD, TDS, home inspection report, structural pest control report and any other investigative reports needed to disclose the risks (and if they’re not currently available, ensure they wll be received by the agent and buyer no later than the day of the auction); [For more information on the NHD, see the July 2010 first tuesday article, The Natural Hazard Disclosure Statement (NHD): included in marketing packages to create transparency and attract buyers; For further study of the TDS, see the July 2010 first tuesday Form of the Month.]
- public information on the property from local government departments, such as the planning, building and fire departments;
- research on the property’s title condition and a complete title profile with all documents currently affecting the property’s title such as would be contained in a preliminary title report;
- determining the uses permitted on the property (zoning/compliance/retro-fitting requirements/certifications of occupancy);
- if the property is subject to a homeowners’ association (HOA), obtaining copies of the conditions, covenants and restrictions (CC&Rs) and financial facts from the listing broker or present management company [See first tuesday Form 150 §11.9 for a checklist];
- completing a comparative market analysis (CMA) to establish the property’s value [See first tuesday Form 318];
- complete an operating costs analysis of the property [See first tuesday Forms 306 and 352]; and
- contacting the police department, sheriff’s office or substation with jurisdiction over the property to learn about any criminal activity near the property, police response time and prevention activities both public and private. [For more information concerning an agent’s use of a criminal security disclosure, see the December 2009 first tuesday article, Safety disclosures: crime and the prospective buyer.]