Auction: A third option for selling real estate, Four Corners Business Journal, Jan. 16, 2006

PAGOSA SPRINGS – Ask most people how many options they have for selling property and they will say two: List it with a real estate agent or try to sell it “by owner.” But a third option is on the rise. The number of real estate auctions in 2005 was 15 percent higher than the number in 2004.

The National Association of Realtors predicts that by 2008, one in three properties will be sold at auction. Most real estate auctions today are not foreclosure or distress situations; rather they are the result of a seller choosing a cost-effective, accelerated method to sell a property at a true market value. Auctions are win-win situations where sellers obtain immediate cash and buyers purchase properties for a price determined by open, competitive bidding.

The Four Corners is home to a master franchiser for the only franchised real estate company in the world, Pacific Auction Exchange. PAX Auction Option, LLC is one of 33 franchises nationwide and was recently named “Franchise of the Year 2005,” by their parent company in California. Auction Option LLC is owned and operated by Aristotle and Janelle Karas and is based in Pagosa Springs.

In addition to “Franchise of the Year,” the company placed first and second in the “Highest Auction Price” category. They sold a property in Kailua Beach, Hawaii, for $14,630,000 and the Ptarmigan Ranch in Durango for $1,078,000. The Karas’ were also awarded the prize for “Most Number of Auctions.” They hosted 20 auctions in 2005.

“For me,” Janell Karas, franchise director, said, “the number one thing is that we are pioneers in this industry. We can offer someone a different way of doing (real estate).”

Karas outlined for The Business Journal what she called “a totally streamlined way of taking a property and getting it sold.”

PAX meets with a seller. “As long as the seller doesn’t have crazy expectations, it’s usually a good fit. If they say ‘I have to have my property sold in two months,’ or ‘I just want to get rid of it,’ then they are probably a good candidate.”

According to the National Association of Realtors, a good auction situation is one where the seller needs immediate cash, has a partnership or marriage break-up, is moving out of state, wants to liquidate an estate, is retiring, is auction minded, has a listing that is about to expire, has already purchased another house, knows the auction will bring a fair market price, has financial problems, or has high carrying costs on the property.

In a real estate auction, there isn’t a traditional market evaluation or appraisal. The buyer doesn’t name a price and hope that someone will pay that amount. In an auction, “The auction broker gets all the buyers together and we see what the market will bear,” Karas explained. “Every property is unique. I don’t know if the property is desirable. We don’t do a ‘per square foot’ price analysis. It is what it is.”

What the auction company does is market the property to attract potential buyers. In the case of Kailua property, marketing was done via an elegant brochure and DVD, Web sites and a network of other real estate auction brokers. The Kailua property was ideal for auction because it was unique and, because if its uniqueness, difficult to appraise. The builder had high carrying costs for keeping the property and wanted to create an urgency and excitement about the property similar to that surrounding a Picasso at a Christi’s auction.

A good auction property is one that: has a lot of equity (25 percent or more), is unique and there is enough interest to encourage competition, has high carrying costs for the owner, is vacant, or is difficult to appraise.

The seller can choose from three types of auctions. An Absolute Auction means the property is sold to the highest bidder, regardless of the price. This form of auction generates the most response from the marketplace. A Minimum Bid Auction means a minimum price is set and announced and publicized up front. This reduces the risk for the seller, as the sales price must be above a minimum acceptable level. A Reserve Auction means that the highest bid is an offer, not a sale. A minimum bid is not published and the seller reserves the right to accept or reject the highest bid within a specified time. The seller is not obligated to confirm a sale other than at a price that is entirely acceptable to them.

An auction is simple. There are no warranties (except clear title) and little chance that the sale won’t close because buyers are pre-approved. An auction contract is three pages compared to the typical 13-16-page real estate agreement. For a seller, the real estate auction broker is the only true seller’s agent. Most real estate professionals are dual agents, meaning they can represent both the buyer and the seller during a transaction.

“I really like that we are focused on one thing at a time,” Karas said. “We focus on one property for 30 days and get it sold.”

The National Association of Realtors recommends that realtors who want to get involved in auctions look for an auction company that is experienced in real estate sales. PAX, Auction Option LLC is one of three exclusive real estate auction companies in Colorado. Predictions are that sales via auction will skyrocket as realtors expand their market to increase revenues.

“There is an incredible income potential,” Karas said. “This is a low overhead business. The whole reason I wanted to become a master franchiser is that I wanted to share the opportunity.”

PAX, Auction Option LLC, has franchises in Highlands Ranch, Colo., Evergreen, Colo., Denver Tech Center, Colo., Santa Fe, and Las Vegas. They are looking to expand their team. As a franchisor the company offers an apprenticeship program, marketing support and a network of other auction companies. The opportunity is available to those without a current real estate license and Auction Option LLC provides 30, 60 and 90-day strategies for those in the process of getting their Broker’s License. The master franchiser considers their franchisees to be partners and helps out by handling some of the internal work out of their office in Pagosa Springs.

In an auction, the broker typically gets a 10 percent buyer’s premium or commission on the sale price. A PAX franchisee then pays a 6 percent royalty on their net earnings to the franchisor, except during the apprenticeship period (or first ten transactions) where the franchisee keeps 55 percent and the franchisor receives 45 percent of net. The initial investment is $25,000 and the company has an extensive application process.

“We are looking for someone who is a team player, a people person, detail oriented and energetic, a real entrepreneur,” Karas said and then added: “This will be a large segment of how people will buy and sell real estate. It’s happening. It’s growing. Now’s the time to get in with a company that’s developing their name and is on the cutting edge of this industry.”

For more information, contact Janell Karas, franchise director at Pacific Auction Exchange, Auction Option LLC at (877) 612-8494 or email her at Janell@auction-works.com. Visit their Web site at http://www.auction-works.com.

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