WHICH TYPE OF AUCTION IS BEST?
Every land auction method is different. DreamDirt conducts live in-person auctions, but we also have pioneered online bidding methods for farmland auctions over the past decade. We offer so many different types of land auction services that we refer to them as “Customizable Auction Services”. With DreamDirt, you have multiple options to sell farmland by auction.
In this post, we discuss the many different types of auctions available to anyone looking to sell land and real estate property. If you've got questions about which auction is best for you, we've got the answers.
Today DreamDirt offers 4 main types of farmland auctions:
• Live Outcry Auctions- This is an auction that is a very traditional auction. The Auctioneer and bidders gather in the same place. The auctioneer cries for bids, bidders raise their hands to signal their bid and the auctioneer announces each lot sold.
• Live In-Person Auctions with Online Bidding- This is a “combination auction” that combines a traditional live outcry auction but also allows other bidders to stay home and bid on the internet. Some call this a blended auction where you see a traditional auction but 2 different ways to bid.
• Timed Online Land Auctions- This is probably the biggest advance in auctions today. This type of auction uses ascending bidding against a descending clock or countdown. This method was pioneered by DreamDirt across the Midwest. In fact we conducted our first Timed Online Real Estate Auction for a farmland property in 2008, over 11 years ago at the time of this writing. During this type of auction no audio or video is broadcast and the closing of lots is controlled by the computer countdown clock. This auction will have a “closing time” when the auction ends. This is different than all other types of auctions which have a “starting time".
• Webcast Land Auctions- This is a live outcry auction that uses the Internet to take bids. The Auctioneer and bidders will be in different places and the auctioneer will cry the sale, bidders will listen and participate via the Internet. During this type of auction audio and video are broadcast via the Internet for all bidders to experience. The auctioneer controls when lots close and there is no countdown clock.
What can an online auction do that a traditional live auction can't?
First, the generic term Online Auction can really mean two different types of auctions you see above. The Webcast Auction and the Timed Online Auction are both “Online Auctions. Here are what we believe are the 4 most beneficial aspects of having your auction conducted online.
1. Directly Connect Bidders to the ACtual Land Auction to bid
I think one of the most fascinating aspects of an online land auction is that there is no disconnect from advertising to the actual auction. It gives us options that live auctions alone do not have. All digital advertising allows us to link directly to the auction regardless of the medium. A video on YouTube, a post on Facebook, a banner ad, the MLS, an email to potential bidders, a text message to a potential bidder … all can hyperlink directly to the auction where bidding can take place. This allows them to go into the auction anytime they see advertising and even better, it allows them to bid immediately or follow bidding for a potential future bid. Traditional auctions only allow bidding in about a 1 hour timeframe but online land auctions allow bidding for 30-45 days. We have witnessed the value of this to our clients and count it among the best benefits our clients see.
2. Social Pressures and Bidder Friction in Land Auctions
The single-best benefit of online auctions is the fact that social pressures are reduced to nearly zero. This is a benefit to the buyer which results in a benefit to the seller.
Social pressures... you may be wondering what we are talking about. Let me explain. As a potential buyer enters a live auction (where participants can physically see each other) they experience social pressures that can be detrimental to the value of a seller's property. Live auction participants often live in the same community, are neighbors, go to the same churches, have children in school together, are members of the same associations, do business with each other and have to co-exist after the auction. In many situations, one bidder will yield to another for a myriad of personal reasons where the relationship is more important than being the top bidder.
This is most notable when a tenant to a farm sits in the front row of the live auction and bids on the farm. Other farmers imagine themselves being that bidder and they imagine their friends bidding against them. That social pressure will lead to a reduced outcome for the seller. It's not that others won't bid, but we more often see the price stopping short of full market value. The same can be true when family members or neighbors openly bid, or one friend bids and a friend won’t bid against them.
With online auctions, all these social pressures are put aside. Bidders are all anonymous. Online, they only see a bidder number in our FarmBid system. Therefore, they are all able to bid freely without the pressures present in live auctions. Even if an online bidder reasonably knows a person is likely bidding on the farm, the anonymity of online bidding gives them a future excuse to say, “I did not realize I was bidding against you.” It leaves the farmland seller with the opportunity to achieve the highest and best bid for the land and it affords every buyer an equal opportunity to bid and buy the farm at the best price. An online farmland auction really is a win-win for bidders and sellers both.
3. Online Land Auction Fees and Commissions
Another benefit of Online Auctions for our clients is their efficiency. Some of our clients are surprised when they hear that an online auction is cheaper and costs less money.
In 2017, after a decade of developing best practices with online land auctions, DreamDirt invested in a one-of-a-kind custom online bidding platform we call FarmBid. It was specifically built to conduct farm & land auctions. We spent a great deal of money on this platform, but it creates long-term savings for our company since we will not need a 3rd-party provider with a sub-par bidding system, who charges hefty fees. Not only is the FarmBid platform now the absolute best platform built specifically for land auctions, DreamDirt owns it and controls it 100%, benefitting our clients. In addition to those savings, our clients also save by no longer having to provide a venue for the live auction - which includes refreshments, printed material, event liability insurance, additional labor costs for ringmen, clerks, and travel expenses for our team. These savings are all passed on to our client which results in the seller achieving more money.
4. Speed and Urgency: Buying Land Against a Clock
For many years, auctioneers have been taught that a fast-talking auction chant was responsible for achieving better prices. If a person was put under the gun they would make rapid fire decisions. It was always believed this resulted in more money for the seller. It has always been a point of pride among auctioneers who have contests to see who is the "best fast talker" and each year all around the nation "Champion Auctioneers" were crowned and this has been touted as a reason to hire that auctioneer over others.
In the absence of technology an auction chant is a motivating component of an auction... but could it be that people will actually spend MORE money when they are not under pressure and have time to make decisions? Interestingly enough, this is exactly what we have experienced over the last decade of doing online land auctions. Too many times we've talked to a runner-up bidder after a farmland auction that said, "After I thought about it, I should have bid a couple more times to see if he would have given up." We've heard this for years after live auctions. We've seen this same principal play into Timed Internet Land Auctions where social pressures are removed and a bidder bids against a clock with a soft close*.
In a live auction format, many things affect the resulting outcome. The online bidding revolution has shown us that when people bid against a clock in privacy, it is equally or possibly more powerful than traditional live auctions. I followed a recent discussion on Facebook where a noted Auction Industry Educator brought this topic up. Auctioneers from around the nation chimed in their experiences - the overwhelming majority of the responses supported the belief that bidding against a clock in private was often producing equal and often better results on everything from personal property to real estate. That said, online auctions only perform best then they are conducted by a professional auctioneer using today's best practices. Even when an online auction produces an equal result, the client still realizes more money from reduced expenses and commission fees.
*SOFT CLOSE SIDE NOTE (And Additional Benefit!):
A soft close is set by the auctioneer at the beginning of the auction - it is a rule the auction goes by when it closes. There are two settings that affect a soft close. 1) The part of the auction affected by the soft close, and 2) The length of extension.
We've found that only the last 2 minutes of the auction should be affected by the soft close. If the auction is set to close at 10AM, that means 10AM is the very last opportunity to place a bid and the clock ends at 10AM. However, if someone bids between 9:58AM to 10:00AM, the auction clock will be extended.
The length of that extension is the 2nd setting we mentioned above, and can be very customized. We've talked with auctioneers all across the nation about this issue and watched hundreds of online auctions end. From this experience, we believe 5 minute extensions serve our seller the best. It is important to understand that once a person is outbid, they need time to receive the text message and email that is sent to them, then potentially even more time to reach a device, log in, and place a counter bid. Additionally, we want time to make a phone call to the outbid bidder and time for them to consider a new bid. To be safe, we offer a 5 minute extension. On on every online land auction we've conducted, this has been the perfect amount of time.
An online land auction can be customized using these different settings, however our best practices show us our 2 minute soft close, 5 minute extension has been working well.
Should you have your land auction conducted online?
Our vast experience conducting land auctions online has saved our clients many thousands of dollars, and earned them more money at the end of the transaction. Many new clients first hear of an online land auction and wonder if its really the best choice for them. As the leader in the online auction space, DreamDirt is ready to help answer your questions.
This month, we are opening DreamDirt's Farm Auction Technology Division in Mason City. This space will serve as our online auction technology center. We will be able to efficiently conduct online auctions, live auctions, and many other services out of this location. We understand that many do not have effective access to the internet, even in today's age of online technology. This space will allow them the opportunity to participate in our online auctions, no matter their internet-use ability.
Are you considering a farmland sale? DreamDirt offers live and online auctions as well as private real estate brokerage. We can help you evaluate the method that best fits your situation and farm. We offer free consultations with you or your family as well as a free market analysis which is a valuable report that helps you learn more about selling farmland along with educational products that help sellers understanding the process before making decisions. You can always email me Jason@dreamdirt.com
Jason Smith, CAI 515-537-6633
Auctioneer | Land Broker | Appraiser
You can call us at Toll Free (855)376-3478
Local Phone Numbers
- Mason City, Iowa 641-423-6400
- Des Moines, Iowa 515-257-7199
- St. Louis Missouri 314-207-5200