Auction services are not commodities
April 9, 2013
Farmers understand commodities. The essence of a commodity is that one is pretty much like another. A bushel of corn is a bushel of corn. It will accomplish the same thing as the next bushel, so you buy it at the lowest price you can. It’s a good system that works — for a commodity.
But there are times when you have to set the commodity framework aside to get the best result. That’s the case with retaining an auction firm to sell your farm. Today, there are a lot of auction companies that will conduct an auction for extremely low commissions. Why pay more?
Because you’re not really buying an auction event per se. You’re hiring someone to market your property, and that involves a lot more than putting up signs and calling the sale. Some auctioneers rely on today’s strong demand for farmland to do the job for them. They take out a few local ads, circulate some flyers (if time permits), and show up on auction day to call the bid. Others — including Murray Wise Associates — take a different approach. They use professional designers for their marketing materials, and they spend time courting local bidders. The better ones reach outside the area, bringing your auction to the attention of investors. Depending on the property being sold, your farm might be of interest to a dentist in a neighboring county who invests in farmland. Or a hedge fund manager from New York.
Does any of this matter? After all, if the farm is going to sell to another local operator, why bother with investors from outside the area? Does it really matter?
Yes, it matters a great deal. The point of the auction is to get the best price for the seller, and we do that through competition. Even if your neighbor does indeed buy your farm, he’ll pay a higher price, because he’ll have to compete with a larger pool of bidders. In my experience, the more vigorous competition from a more aggressive campaign tends to result in a higher sale price — generally one that provides the seller with more money after the property is sold and the commissions are paid.
And isn’t that the point?