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Marketing Schemes used by Real Estate Agents: Disguised as an “Auction” or “Distress Sale”

Blog by Amanda Blake | March 25th, 2012

There have been times that a colleague in my industry will embarrass me by doing some slimy sales technique and it makes me cringe. Since 2006, I have tried to build a reputation to shake some of the public's image that real estate agents are slimy salespeople. My goal was to show the consumer that some of us prefer to be educators and advisors and manage our businesses accordingly. But six years in and I am slapped in the face with something that is a giant step backward for our industry, something that can cause the consumer to label us as slimy salespeople again. The latest of these was a marketing scheme disguised as an auction or a distress sale. Here is how the story goes.

A week or so ago, I had a client call me and tell me that she had toured a "distress sale" that was going up for auction the next day and wanted me to represent her with the transaction. It was strange to hear that a house was going up for auction because this is not a standard practice for selling houses in Central Alberta. But I was ready to assist my client in whatever capacity she needed.

The next day, I met my client at the auctioned property. There were signs all over the yard and into the neighborhood that indicated it was a distress sale. My client assumed because it was being advertised as a distress sale, that it was the same as a foreclosure. I had to explain that I did not believe this was the case (based on the title of the property) but rather the word "distress" was used as an advertising technique to gain exposure for the property.

Previous to the viewing with my client, my client had viewed the property the day earlier at an open house the listing agent was hosting. The agent had explained the details of the auction to my client and my client understood the following;
  • That the home would be sold on Sunday evening to the highest or best bid
  • That all bids would be disclosed to all registered bidders
  • To register, you had to attend one of the open houses and put your name and number on the bid sheet at the house
  • The starting bid was approx. $209,500 but the current list price of the house was $439,900
  • At 5pm on Sunday, a round robin bidding process would begin via telephone.
As we walked into the property, the listing agent was in the kitchen with two mortgage brokers and spread across the island he had the rules for the bidding process and the signup sheet that had a list of names, phone numbers, email addresses and the amounts of each person's bid. I toured the property with my client, her daughter and my husband, who is also a licensed REALTOR® and the Broker of Lime Green Realty Inc. Once we were finished, we went into the kitchen to ask the agent some questions. Since there was no auctioneer and all of the bidding was going to be done over the phone, we had a few questions. The conversation below has been abbreviated for the purposes of this article but recorded as accurately as possible from memory:

First Topic:
Stephen: "Is there a reserve?"
Agent: "No"
Stephen "There is no reserve so the seller will accept the highest bid regardless of the price?"
Agent "Well no, the seller won't accept any price."
Stephen: "So there is an undisclosed reserve?"
Agent: "Yes there is"

Second Topic:
Susan: "If you are going to use the phone to do the bidding, how do the bidders know you aren't just making up numbers to drive up the price?"
Agent: "Well I am not going to do that."

Third Topic:
Stephen: "Is the seller going to be on the phone with you at 5pm?"
Agent: "No"
Stephen: "So you are going to verbally do round robins and then take the best or highest bid back to the seller which still has to be written on a
legally binding contract?"
Agent: "Yes"

Fourth Topic:
Me: "Are you complying with PIPA?
Agent's Response: "What's that?"
Me: "Privacy laws, people's personal information such as their names and phone numbers?"
Agent: "Oh, yes."
Stephen: "Are you going to put people's names and phone numbers into a database and then start calling them?"
Agent: "Well of course, why not?"

Agent's Concluding Remark:
Agent: "You guys worry about the rules too much"
Stephen and I looked at each other in total shock when the agent said, in front my client and my clients daughter, "you guys worry about the rules too much." Clearly, the listing agent doesn't worry about the rules enough!

At this point, I realized that the whole concept of this "auction" was strictly a marketing ploy. Not only does this process create a list of prospective buyers that the agent can use for future buyer lead generation, it creates a frenzy of interest from people that the agent is hoping to create a bidding war to drive the price up.

I have no idea why on earth a seller would agree to use this type of marketing strategy on their property. Advertising your home as a "distress sale" or a "quick sale" means foreclosure or a "good deal" to the average consumer. So the offers that you are going to receive are going to be reflective of that buyer mentality which means they are going to be low. It can create a negative stigma on a property that could end up damaging any future saleability. Real estate agents should not be using marketing schemes for lead generation that could generate a negative impact on the future saleability of their seller's homes. As per our fiduciary duties, we should be looking out for the best interests of our clients and in my opinion this is not in the best interest of the client.

Exactly one week later, the house is still for sale and was never reported as conditional in our real estate database at any time over the last week so I am guessing the grand marketing idea was a bust. In fact, after reviewing the agent's website, there have been two previous properties that he tried using this technique with and neither one of them have sold either. One has been on the market for 39 days at the time I wrote this blog and the other has been on the market for a total of 239 days (although I don't know at which point he tried the distress sale idea in that 239 days). The point is that I think this auction idea is working out better for the agent then it is for his clients as it generates a tonne of buyer leads for the agent.

What makes this even less impressive is that this agent belongs to a large brand name, franchised real estate office. Either the franchise is in a state of despair looking for ways to assist their agents with this type of marketing scheme to build their agents database of clients or they are so disconnected from the day to day operations of their agents that they have not considered how this could be perceived to the public. In my opinion, this type of marketing technique also reflects poorly on the owner of the company who is allowing this. As an owner of Lime Green Realty Inc., an independent brokerage which is licensed by the Real Estate Council of Alberta, I would never allow one of our agents to use this type of marketing scheme. I feel it is very misleading to the public, it cheapens our industry and it does not reflect positively on the marketing of the house that is for sale.

So before you are convinced to try some whacking marketing technique, please make sure and ask some questions like "how many successful sales have you had with this concept?" and "how many listing sales did you (being the real estate agent) complete in the past year?" This information can always be verified by contacting the owner of the real estate company (or also referred to as the "broker" most times) as well you can contact the local real estate board to verify numbers given to you by a particular agent for sales history.
Please remember, not all real estate agents are created equal.