Many auctioneers and sellers choose to sell large lots of land in an “open combination” (also known as “multipar,” “multi-parcel” or “multiple parcel”) formats, where the land is broken into smaller lots and then sold in whatever combination benefits the seller the most — each individually, or in other combinations including all for one.
Such an auction typically involves one seller.
We just previously wrote about selling one lot (one property, one “sale”) with more than one owner. That treatise is here: https://mikebrandlyauctioneer.wordpress.com/2021/03/19/one-lot-multiple-owners-at-auction/. Certainly, one lot with more than one owner is not terribly unusual nor difficult to manage.
Today, we explore such open combination auctions with multiple sellers — in that can an auction of this type have more than one seller, and how would the monies raised be distributed to those multiple sellers? Our answers are “yes” and “any way all parties agree.”
If each lot sells individually, then whatever price is realized for each lot could go to that owner (minus cost of sale.) However, if some or all lots are sold in combination, the auctioneer and sellers must determine how much goes to each lot owner.
Let’s say we have 5 lots. Open combination bidding allows for 52 different combinations as we detailed here: https://mikebrandlyauctioneer.wordpress.com/2014/05/24/auctioneers-and-the-number-of-combinations/. The proceeds could be allocated by acre (unless all sold individually) or by the assigned relative value of each lot. For example:
Lot #1 is 750 acres, Lot #2 is 1,200 acres, Lot #3 is 375 acres, Lot #4 is 912 acres and Lot #5 is 460 acres. As such (750+1,200+375+912+460) = 3,697 is the total acres. Lot #1 represents 750/3,697 or 20.28%, Lot #2 represents 1,200/3,697 or 32.46%, Lot #3 represents 375/3,697 or 10.14%, Lot #4 represents 912/3,697 or 24.67% and Lot #5 represents 460/3,697 or 12.44%, or
Lot #1 and Lot #4 are deemed to have the same value, and worth twice the value of any of the remaining lots. Here, Lot #1 represents 2, Lot #2 represents 1, Lot #3 represents 1, Lot #4 represents 2 and Lot #5 represents 1. Therefore (2+1+1+2+1) = 7 and Lot #1 and Lot #4 represent 2/7 or 28.57% each and every remaining lot represents 1/7 or 14.29%.
We have previously held that the terms of the auction would preferably be the same for all lots, as they might sell all together. However, some terms for the lots could be different — in that each could have a different buyer’s premium if assigned an individual value and/or possession date. Nonetheless, it would be necessary for all to sell either “with reserve” or “without reserve” as mixing auction types would be problematic.
Given there are several versions of selling with reserve (minimum bid, seller confirmation, secret reserve …) it would seem to us that the only “flavor” of “with reserve” that would be workable would be a stated minimum bid. Therefore, it seems that selling absolute or with published minimum bids (constituting a sufficient amount for each seller to sell) for all lots would be the only suitable method.
Additionally, there is also the issue of any marketing fees or other costs being allocated to multiple sellers. Should the seller receiving more in proceeds pay more of the marketing budget than a seller receiving less? Or, is the marketing fee paid per the number of acres? It may be better for the auctioneer to cover any marketing fees with his or her commission?
If you’re an auctioneer selling land or other property in an open combination format with multiple sellers, there are several important considerations; a complete understanding with all sellers for all possible circumstances is paramount. Anything less than a comprehensive pre-auction planning session with all parties is ill-advised.
Mike Brandly, Auctioneer, CAI, CAS, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, RES Auction Services, and Goodwill Columbus Car Auction. He serves as Distinguished Faculty at Hondros College, Executive Director of The Ohio Auction School, and an Instructor at the National Auctioneers Association’s Designation Academy and Western College of Auctioneering. He is faculty at the Certified Auctioneers Institute held at Indiana University and is approved by The Supreme Court of Ohio for attorney education.