Auctions over estate sales.
What every estate executor must know before liquidating an estate!
My good friend, Auctioneer Ken Lindsay, CAI has given me permission to use his article on what every seller should know before liquidating an estate. Slightly modified article below:
Each year we receive dozens of phone calls from regular folks that find themselves in the demanding position of being an estate representative for a family member or friend.
It seems such a role is always a thankless job and very demanding on your time and nerves. In most cases, it becomes apparent that the person named as an estate representative (executor) lacks the necessary business experience and know-how to adequately perform the necessary tasks when settling an estate.
When the time comes to properly liquidate the assets of an estate, it seems that 9 out of 10 times, estate representatives improperly select the wrong type of liquidation service, which ultimately costs the benefactors of the estate thousands of dollars and added frustrations.
We have found that the majority of estate representatives and executors whom we speak to simply do not understand what the difference is between an Estate (Tag) Sale versus an Auction.
The fact is, the difference between an estate sale versus an auction is mammoth and under no circumstances are the two services synonymous with one another.
ESTATE SALE vs. PUBLIC AUCTION
Excerpts from Wikipedia, the free encyclopedia (Take note of the underlined)
An estate sale is a type of garage sale, or yard sale to dispose of the majority of the materials owned by a person who is deceased or will be moving. Estate sales are usually conducted by a “professional”, for a percentage of the revenues. The liquidator may also charge the estate for the costs to conduct the sale, including advertising, marketing, research, labor, security, refreshments and other miscellaneous fees. This is because the scope of the process is usually overwhelming to the survivors, and for the specialist’s experience with pricing antique items, his or her following of customers, and the specialist’s experience in disposing of unsold goods in an unsentimental manner after the run of the sale. Antique and collectible dealers use estate sales as one of their more important wholesale sources. Estate sales are typically 1 to 3 days long, often with a price reduction toward the end.
ESTATE SALE: NO INDUSTRY STANDARD
Starting an estate sale company requires no professional standards of any kind. More specifically, there are no professional organizations, bonding requirements for the funds, education, and training, designations, continuing education or even a Code of Ethics for the estate sale company to abide by. By and far, it’s the wild, Wild West, shoot from the hip of all businesses.
ESTATE SALE: CONFLICT OF INTEREST
This is the number one red flag that should be at the top of your radar screen. You will find that a large majority of estate sale companies are operated by an antiques dealer, Internet auction seller, or second-hand-goods dealer, who is pricing your items, which is clearly a major conflict of interest to say the least. Problems that may arise out of a situation like this is the estate sale company may strategically position and price valuable merchandise which is quietly sold to the estate sale company, or friends, so they can reap the true value of the merchandise elsewhere. Many estate sale companies reserve the right to retain any remaining inventory at the end of the sale which again, raises eyebrows and is a major conflict of interest. Recording of the transactions to show who the real buyer was are non-existent.
ESTATE SALE: THE EARLY BIRD GETS THE WORM
The only form of competitiveness involved with buying your merchandise is folks arriving the earliest on the morning of your sale in hopes of being one of the first in the door to find ‘the good stuff’. Some estate sale companies use a number system where random numbers are pulled out of a hat which determines WHO gets inside the home first while the rest of the buyers stand in line waiting to gain entry and hope that all the ‘good under-priced stuff’ was not bought up by the first group that was in.
ESTATE SALE: THE JUDGE, JURY, AND EXECUTIONER
Nobody can possibly be an expert on all collectibles, jewelry, antiques, coins, art, automotive, tools and even household furnishings. However, the vast majority if not all estate sale companies play the role of the Judge, Jury, and the Executioner. In other words, pricing of your valuable assets comes down to one person establishing such values which are often erratic. It’s a well-known fact in the antique and resale business that dealers prefer so called ‘professionally’ operated estate sales as they can capitalize on improperly marked goods – that is, if they are one of the first ones in the doors.
ESTATE SALE: MARKETING IS LITERALLY NON EXISTENT
The majority of estate sale companies that we have observed over the years have zero concepts on the art of marketing. Essentially, there is no marketing campaign whatsoever with the exception of a classified ad in the local newspaper, a sign on the corner and perhaps the utilization of the Internet in some capacity. Instead of laying out a detailed marketing plan, they cut this corner right out of the equation and brag up and count on their local following. Let’s put it this way, when was the last time you read an article in the local newspaper or a story on the evening news that talked up an estate sale? It does not happen because they are low publicized and non-newsworthy events.
ESTATE SALE: NEGATIVE HAGGLING
For the most part, there isn’t any negotiations whatsoever at an estate sale. The exception is, if an item isn’t priced then the estate sale company will shoot from the hip and name a price from off the cuff. The other exception is, typically estate sales are two and three day events where, over time, prices are slashed up to 75% off from the original marked price. When prices are negotiated down on your merchandise, negative haggling is the automatic process.
ESTATE SALE: SHODDY CONTRACTS AND AGREEMENTS
Obviously, this isn’t the case with every company that provides estate sale services but there does seem to be a trend with poor contracts in this field. Those that I’ve seen are simply cut-and-dry one page wonders that are full of legal loopholes and leave the owner practically defenseless – well, at least according to the contract. First and foremost, a good contract should never be written by anyone other than an attorney and never in a fashion to gain leverage over the other party. Common language in an estate sale contract is the estate sale company reserves the right to retain any unsold merchandise. Some will say they will take it home and try to sell it on the Internet. Accounting could go on for months. Many times, the owner is not allowed on the premises during the sale and the estate sale company isn’t responsible for theft which is ironic considering that you may have dozens of vastly unsupervised strangers rummaging through all rooms in your home on the first sale day. In addition, you’ll see that most estate sale companies have very little mention on how they are going to promote your sale. They often pay for all advertising right out of their own commission; which they can afford to do because there isn’t much of an advertising campaign in the first place. Be careful with what you agree to. Read the contract in its entirety and always have your attorney review the contract for legalities and liabilities. Michael Hoffman, CAI never has a problem working with your attorney to iron out any issues you may have.
ESTATE SALE: A MOUNTAIN OF LEFTOVERS
“Leftovers” are fine at holidays, but not when your ultimate goal is to sell and clear out the residence of personal property. Unlike an auction, the likelihood that you are going to have a mountain full of leftovers and a big mess on your hands are indeed pretty likely. Some estate sale companies will address this concern and make ‘clean up’ arrangements at your expense.
ESTATE SALE: YOU CAN’T WATCH!
Despite the fact this point was mentioned in the ‘contracts’ section of this article, it deserves its own section. Many estate sale companies have a provision in their contract that no member of the family is allowed on the premises while the sale is under way. Regardless of the reasons given, if this isn’t a red flag to you then nothing is. The fact is most estate sale companies do not want you around during YOUR sale. Like I said earlier, it’s the wild, Wild West of all businesses where there is typically no accountability whatsoever from a licensing authority, holding company, registration list of buyers, or even the owners of the property being present.
ESTATE SALES ARE A POOR BUSINESS MODEL
At the end of the day, an estate sale (tag sale) is simply a glorified garage sale which is typically operated by one or two semi or retired part-time ‘weekend warrior’ type of small business owners. None have any professional training or required education in the ‘estate sale’ field whatsoever. There are no ‘industry standards’ starting with a strict code of ethics because there isn’t any trade organizations or associations. Many are current or former antique shop or reseller dealers who bring a level of expertise in specific areas but nevertheless, when they are dealing such goods along with representing an estate and setting the prices themselves, it’s clearly a conflict of interest to say the least.
Despite all of this, the actual estate sale process is poor and rarely advantageous to the seller. Assuming that everything an estate sale company does is above par, the process alone nullifies the effectiveness of the ultimate goal – receiving the optimal value on the goods through a competitive complete liquidation effort. Their liquidation is never complete without the use of a garbage dumpster, goodwill and a guarantee in writing that the estate sale company will ensure that the property is clutter-free and clean at the end of the sale.
There is NO salesmanship whatsoever when it comes to selling your valuable assets at an estate sale. None. The handlers of the estate use the ‘silent salesmanship’ approach to selling your goods which equates to a price tag and willingness to reduce prices in the hope that a buyer will purchase the item.
Estate sales are simply not the best choice when liquidating an estate.
WHEN ESTATE AND TAG SALES ARE EFFECTIVE
Choosing the right type of service to liquidate an estate is subject to the type of merchandise that needs to be sold.
An estate sale (tag sale), garage sale is effective if the estate simply contains general household merchandise, outdated modern day furnishings and most foreign imported goods. However, if there is a selection of fine antiques, collectibles, memorabilia and certain types of collections, quality modern furniture, then an estate sale is absolutely a poor choice.
Keep in mind that our firm offers estate sale services but there is a reason why we have conducted just ONE estate sale in the past decade – because we strongly advise our clients against choosing this method of selling their assets.
We can tell many stories of where the seller thought an item was worthless, only to be surprised at seeing it sell in an open auction for hundreds or thousands of dollars. To be honest, we are sometimes surprised as well, but that is the reason to use the auction method for the ultimate price discovery.
THE DEFINITION OF AN AUCTION:
An auction is an event in which goods or property are sold to the highest bidder.
By being open to the public, an auction ensures a wide range of bids, and sometimes items at auction can fetch surprisingly high prices. The bidders, in turn, create their own market, determining on an individual basis how much they want to pay for an item, rather than having prices dictated by the seller (or by an uneducated tag sale company representative).
WHY SHOULD YOU SELL YOUR ASSETS AT AUCTION?
The auction method of marketing is one of the world’s earliest professions. In fact, this unique method of selling literally dates back to thousands of years and the reason for this is quite simple. Auctions are the quickest and most efficient method of selling goods at market value.
Truly professional auctioneers are full-time professionals that typically have years of experience and an extensive educational background in the auction industry.
- Creates Competition: When Bidders Compete, Sellers Win.
- Establishes a floor and eliminates the ceiling on pricing
- Seller has full control (when, where, how much, terms, conditions, etc.).
- Fully transparent and recognized as being fair to all parties in the marketplace
- Only method that truly reveals the Current Fair Market Value
- Satisfies Governmental, Judicial and Probate requirements
- Creates excitement within the marketplace
- Creates a sense of urgency that cannot be duplicated by any other method of marketing
- Converts all your items into cash. Not just your best items
- Buyers come prepared to buy
- Auctions expose your assets to a larger pool of qualified buyers
- Fully transparent! Sellers are welcome and encouraged to attend THEIR auction.
AUCTION: THERE IS AN INDUSTRY STANDARD
There is a well-defined industry standard in the auction industry through the National Auctioneers Association, the Ohio Auctioneers Association and the State of Ohio.
Regardless of which auction company you are considering to do business with, the auctioneer must be licensed and bonded by the State of Ohio. It’s also important that they are members of their state and national auctioneers association, as they are required to follow a strict code of ethics as members of these organizations.
Furthermore, the auction industry provides extensive educational resources with the most distinguished being the Certified Auctioneers Institute which is a three year designation program held at Indiana University in Bloomington, Indiana. The CAI designation is equivalent to a PhD in the auction industry and roughly 1,100 auctioneers worldwide maintain this important auction designation.
In addition, the Universal Commercial Code, UCC, specifically outlines important protocol that professional auction firms are to adhere to.
AUCTION: 100% TRANSPARENT!
Michael Hoffman, CAI not only welcomes but we encourage our sellers to attend their auction! There is nothing more satisfying than seeing the owners of the property smiling while witnessing the success of their auction event. At a public auction, each item sold is completed in open view which leaves nothing to the imagination. Michael Hoffman, CAI strongly encourages potential sellers to attend one of our auctions before you make a decision of where to sell or whom to hire.
AUCTION: THE AUCTION METHOD OF MARKETING
Generally speaking, professional auctioneers are specifically trained and experienced in the ART of marketing. In fact, this is the most important aspect of the entire auction process. On a regular basis, auctions make the headlines with local and national news agencies because auctions create and demand attention!
Professional auction firms go to great lengths to market your assets to the right target market audience as opposed to limiting their advertising by placing generic classified ads in the local newspaper and a cardboard sign on the street corner. The professional auctioneer’s method of marketing is in a league of its own. We regularly have hundreds of photos and descriptions of items being sold at auction posted to our website auction galleries.
In terms of marketing alone, the auction method of marketing is in a league of its own.
AUCTIONS DELIVER FAIR MARKET VALUE!
Auctions are the only method of selling where prices are negotiated upwards through the momentum of competitive bidding. Can you think of a better way to determine fair market value than an auction with an object offered by a willing seller and a crowd of willing buyers?
Without question, dealing with an experienced auction firm, a well prepared and marketed auction will result in the highest possible fair market value on that particular day in a timely and efficient method.
Before you make the decision on liquidating an estate, be sure to consult with Michael Hoffman, CAI and discover how well the auction method of marketing will work for you. If you get nothing else, you will be amazed at how easy it is to let our professional auction company take the load off your back and handle the sale for you.
Only at auction!
Please feel free to contact Michael Hoffman & Associates today at (614) 314-0298 to discuss your specific needs, or with any questions you might have.