Brokerage sales and auctions are both methods of effectuating public sales of real estate and partnership interests in real estate for receivers and Courts. All methods of public sales are intended to create market awareness, transparency, and market value crucial to a successful sale that is approved by the Court. That said, the sale terms and process of a public sale should be determined through the Broker or Auction company and the receiver. Regardless of which sale process is chosen, both brokerage and auction methods of disposition of real estate have their own benefits and drawbacks, and practitioners and receivers need to be mindful of both in order to assess which option may be the best avenue for the particular situation.

Real Estate Brokerage:

Practitioners are generally familiar with real estate broker sales. Selling real estate using the brokerage method starts with retaining an individual broker or brokerage firm who charges a fee or commission to sell the real estate. The seller enlists a broker, who should act as an unbiased third-person facilitator between the buyer and the seller. Brokerage firms tailor the listing term based upon the demands of the seller and the nuances of the property. Both commercial and residential properties are listed online through a regional or local Multiple Listing Service “MLS.” The MLS then feeds this information to syndicator companies such as Zillow, Redfin,, Trulia, Loopnet and Costar and dozens of others for pay “public” websites. For many brokers who wish to advertise their properties, online listing services function as a powerful and effective marketing tool for both commercial and residential properties. On the buyer’s side, 99% of buyers start their search on the internet via countless listing websites, all of which pull information from the internet. These databases provide easy access to real estate information ranging from photos, historic listing information, city and state demographics, and a myriad of other types of information. Interested buyers will then be able to search and find those that fit their criteria to attend showings, and potentially purchase.

Understanding how a broker is going to manage the listing, sale and negotiation process is one of the most important factors in choosing the broker. Like any sale, creating an effective process of offering, negotiation strategy, offer review, and pricing disclosure strategies between the seller and the broker is critical to the success of receivership sales. The broker will work with the seller to assemble underwriting and due diligence materials (include any and all state required disclosures, financial reports, PTR’s, accountings, environmental reports, operating agreements, rent rolls, IRS k-1’s) at the start of the marketing campaign and available for review in an online data room.

The next step for a broker is to provide the seller with a marketing campaign over the course of the listing and to provide metrics of buyer interest on a weekly basis. Not only should a marketing campaign be custom-tailored to each piece of real estate, it must be unique to the proper demographics and audience needed to reach. In the digital world in addition to having standard marketing campaigns (mailers, signs, brochures, etc.), having a website, email marketing and social media accounts enables Brokers to further market featured real estate using internet Search Engine Optimization (SEO) techniques. SEO will help websites rank higher on search platforms and generate organic reach, clicks, and views through paid campaigns. Regardless of the marketing efforts, a brokers’ market knowledge and relationships in the industry play an important role in selling real estate. And, like all aspects of receiverships, marketing budgets should be discussed and approved to maximize the best sale. Marketing may be provided at zero cost depending on the broker/auction company. Timing is also important. Often, depending on the type of property, if offers are not presented within 15 days, alternative marketing and pricing strategies should be discussed. Because properties become less marketable and less valuable over time, failing to adjust the price accordingly can negatively affect the marketability and value.

As offers come in, merely accepting the highest offer out of the gate can in many situations, leave “money on the table.” Indeed, if the broker fails to allow all-inclusive countering and multiple countering opportunities to potential buyers, the Receiver may be left open to critical questions from the Court. The Court may perceive the Receiver as not providing equitable opportunities to purchase real estate to all potential buyers. Therefore, after enlisting a broker, it is of utmost importance that open and ongoing communications are maintained between the receiver and the broker to ensure that the sale and negotiation process is transparent and accomplishes the best sale for the receivership estate.

REC NEWS Winter’03-FINAL.qxd

Auction Platforms:

For many, the auction method is less well understood. Whether you use an auction to sell a Picasso, Ferrari, IP, real estate, business assets, or minority interests, auctions can be an invaluable sale method. Auctions can create a sense of urgency by establishing a definitive sales date, terms of sale, and an equitable sale process for all buyers. Depending on the asset type, urgency and frenzy may actually create value. Using auction platforms can create a competitive bidding environment that may help bolster an equitable and transparent sale process that can be useful for receiverships.

The timeline of an auction will be suggested by the auction company and is based on a multitude of factors for the required exposure of the real estate and minority interest. Article 9 sales and non-real estate may have a 30 day or less marketing timeline. With respect to real estate auctions, the industry rule of thumb is a 60 to 90 day timeline plus the standard escrow closing timeframe of 15 to 60 days. Factors for consideration for the marketing timeline include court requirements, type of real estate, location of real estate, depth of buyer pool and buyer underwriting requirements. If the Receiver or Court approves pre- auction offers, this can often decrease the sale timeline.

Sellers are free to customize their auction experience by choosing auction pricing options which include published reserve, undisclosed reserve, absolute, and no reserve. Knowing which pricing option is best for your situation can create a more effective marketing campaign. A published reserve price allows sellers to state a minimum price at which the real estate or minority interest will be sold and can be crucial to pricing a property, because it creates a starting point for interested buyers and may create bidding momentum. In an undisclosed reserve auction, the reserve price is only known to the seller, listing agent, and auction company. This option may create buyer anxiety, so be mindful whether this route is best for your situation. On the opposite end of the spectrum is absolute auctions, which can be a powerful way to find market value, as the asset will sell to the highest bidder at market value without limitation by the Seller. That said, receivers must absolutely disclose if this method is to be used, and seek court approval in advance (like all sales).

An experienced auction company will provide multiple bidding platforms that will be tailored to the Seller’s objectives. Bidding platforms such as sealed bid, multi- round sealed bid, onsite, online, telephonic, live online and in-Court each have their benefits and may be used in sequence or in parallel. The auction company should provide their suggestions as to which platform to use based on a thorough analysis of real estate, potential buyer demand and depth of buyer pool.

Once the Seller decides how to move forward, the terms of sale and qualification process should be clearly outlined in the due diligence materials for buyers.

Like broker sales, underwriting and due diligence materials should be provided by Seller at the start of the marketing campaign and made available for review in a data-room or online; therefore, buyers are prepared and their offers arefully vetted. And, the auction process can limit or eliminate contingencies when selling real estate and minority interests for auction day offers. Pre-Auction offers may have standard contingencies with the requirement to remove the contingencies 48 hours prior to the auction date. The benefit of accepting pre-auction offers will be on a case-by-case basis, though buyers may see a value in a contingent offer (especially for residential real estate) and as such, bid higher. Auction day bids are without contingencies.

Compensation to the auction company is different than brokerage. The buyer will pay a “buyer’s premium” to the auction company. This a standard auction industry method of compensation, as the buyer’s premium is a percentage based on the sale price, which is added to the highest bid hence, the contract price. Buyer premiums ranges from as low as 1% to 5%. The buyer’s premium is negotiable and based on the estimated sale price at the time of listing contract execution. The buyer’s premium can include the listing broker and buyer’s agent commission (if the listing broker is not affiliated with the auction company).

A successful use of the auction method is shown by the following real life example. A trustee had a large land parcel and a portfolio of 38 minority interests in commercial real estate held in a variety of entities. Initially, the trustee saw little value in the minority interests and focused solely on the land. Ultimately, the Trustee elected to use the auction method, which we assisted in by devising a structured marketing and sale process that included a 60-day global marketing campaign and two- tiered, sealed bid auction. Bidders were given the opportunity to conduct their due diligence during the marketing campaign. All bids were provided without contingencies and proof of funds was required. After initial bids were received there was a second round of “highest and best” bids for the highest 33% of initial bids that met Seller criteria. After court approval, the bids were approved and the buyers confirmed. We received 11 bids totaling nearly $1.1 million for the minority interests. The sale proceeds exceeded the Court’s expectations by 350%.

Hybrid Option:

Hybrid sale methods can also be deployed. Hybrid brokerage allows the property to be listed through a brokered sale first and, if the property is not sold within the time hoped for, the seller may flip the property to auction, thereby having a guaranteed end date of sale and closing. Additionally a broker can provide for what is sometimes referred to as a “stalking horse bidder,” and then retain an auction company to conduct an auction and use the “stalking horse” bid as the floor for the purchase price.

The selling process is never one-dimensional. Whether you choose to auction or broker real estate, minority interests, or any other type of asset, it is important to be

aware of the pros and cons of both, and to speak with industry specialists to make sure the option chosen makes sense for your particular receivership. In the end, being well-educated on how both auctions and brokerage sales work will invariably benefit the receiver and may make it easier to get court approval to sell an asset.

*Todd Wohl is the Senior Partner of Braun International, Premiere Estates International Real Estate Group and Braun Minority Interest Market Exchange “MIMX”. Todd is a licensed real estate agent, a trained Auctioneer and is certified appraiser with the American Society of Appraisers. Todd has valued and sold over an estimated $4 billion of real estate, business assets, partnership interests, and other asset classes.