Effective in September 2016, Ohio adopted revisions to R.C. § 2329.152 to include Private Selling Officers & Remote Bidding (ie. Online Auctions). Many recent articles have focused on the changes in the law.
In the next 4 articles we will be focusing on the operational aspect of the transactions vs. the legal aspect. In this first article, we will focus on determining if a Private Selling Officer (PSO) sale is fits the needs of the creditor as well as the selection of a PSO.
There are 2 main steps a creditor should take in selecting a PSO. There is a cost to utilizing a PSO, so first determine if using a PSO brings you value. To do this, ask yourself the following questions:
- Do you want the transaction to move faster than using the Sheriff?
- Do you want to expand the promotion to prospects outside of the professional buyers at the Sheriff Sale?
- Do you want to have Realtor participation?
- Do you want to increase the odd of 3rd party sale?
- Do you simply want to push the asset to REO ASAP?
If the answer to any of these questions is yes, a PSO offering may be a good choice.
Now you’ve determined that engaging a PSO is beneficial, you need to select the PSO and negotiate fees and costs.
First, let’s look at qualifications.
R.C. § 2329.152 authorizes sales by a Private Selling Officer or PSO. A PSO is defined as “a resident of this state licensed as both an auctioneer under Chapter 4707 of the Revised Code and as a real estate broker or real estate salesperson under Chapter 4735 of the Revised Code.”
According to the Ohio Department of Agriculture, who oversee licensed auctioneers, there are less than 1,000 legally qualified as PSO’s in Ohio. These individuals satisfy the base requirements, but only a handful of Ohio auctioneers specialize in working with lenders, law firms and the Court. Obviously you will want to select someone who fills not only the statutory requirement but who has the level of expertise with your asset and/or transaction type.
Next, let’s look at some typical fees and costs.
According to R.C. § 2329.152(D)(1)(c), the fee charged by a PSO, and the costs incurred by a PSO (other than appraisal and advertisement costs) “shall be taxed as costs in the case up to an amount equal to one and one-half per cent of the sale price of the real estate.” While recoverable costs may be capped, the fees typically charged by an Ohio PSO vary by professional and usually exceed the cap, but not always.
Generally speaking, there are five different costs in a PSO sale.
- Appraisal conducted by Sheriff’s Department vendors.
- Legal ad for publication in the newspaper of general circulation in the appropriate county.
- General promotion cost / marketing cost for the property, in addition to the legal ad.
- PSO fee or commission
- Title agent / closing agent fee if third party buyer is involved
Legal ad and appraisal are relatively uncontrollable, so we won’t spend time discussing them other than to suggest that the Preacipe For Order of Appraisal include language identifying that the appraisers are to send the appraisal directly to the PSO. Language we have used is as follows. “The Appraisers, pursuant to ORC 2329.17 shall, contemporaneously with delivery of appraisal to the Sheriff, deliver a copy of the appraisal to the Private Selling Officer, Richard F. Kruse, at firstname.lastname@example.org, 614-885-0020.” Without the reminder, you and your PSO will likely be spending significant time chasing appraisals around the state.
Title agent and closing fees are also fairly low and generally consistent across Ohio.
Controllable expenses, such as marketing costs and commissions, vary by PSO but are generally as follows:
- Basic Service – Low base fee, plus additional commission if sold to third party. Commission can be anywhere from 7 to 10% or more. This includes managing the property through the process and may only provide limited, if any, additional marketing. The sale may be conducted live or online. The basic service option has been selected often by residential servicers who are slowly testing the use of PSO’s.
- Enhanced Service – A little higher base fee, plus commission as described above, plus marketing expenses to include online postings, eBlasts, PR, direct mail, management of buyer calls, and more. The Enhanced Service program is quasi-custom and may change based on the type of property. Some techniques and marketing venues are better for lower end assets and different for more expensive properties. Marketing efforts and venues change again if the property is commercial instead of residential. As above, the sale may be conducted live or online. The Enhanced, quasi-custom program, is where most of the properties fall.
- Full Custom – Fees and costs are negotiated on a case by case basis and can include nationwide marketing efforts and buyer seminars. Some custom programs include property tours with passed hors-d-overs and helicopter fly overs of the property. Nothing is off the table.
Fees and expenses can also be controlled and minimized when multiple assets are packaged together and offered on the same day. Additionally, many auctioneers that specialize in legal sales and/or selling a significant amount of assets at auction are constantly marketing and promoting on a general level. They drive buyers to their website daily and weekly cross promoting all of their auctions and listings. Clients utilizing these specialists receive the benefit of this effort without the additional cost.
Lastly, related to cost, you may consider a standing agreement with a PSO who can cover your needs throughout your geographic area. Your selection of program can be pre-negotiated, with or without add ons, and the fees may be able to be reduced when the PSO knows there will be a steady stream of work coming through a financial institution or law firm. Some PSO’s may consider this type agreement on a non-exclusive basis and some may also be willing to work with a 30 day cancellation. While PSO offerings are definitely specialized in nature, everything in the real estate industry is negotiable.
To discuss the exact fees and costs charged by our firm, including what is provided in the Basic Service Package, please call Rich Kruse at 614-774-4118 or email email@example.com.