Archive for July, 2007
We are seeing a lot more absolute auctions coming across our screens these days. We all know that means the most “motivated sellers” who are willing to accept the high bid at auction, regardless of price, have put their property up for auction. But is an absolute auction that only has two or three bidders really a fair deal to the seller or the auction company for that matter?
An average of 1-3% of the value of the real estate is spent up front by either the seller, the auctioneer, or sometimes both entities for the marketing and advertising campaign to create the auction. So after all that, only a couple of bidders show up at auction: it happens. This is certainly unfair to all the parties involved and grounds for cancellation of the auction are clear.
The exact number of bidders required to create a competitive environment that will result in an auction price that is considered “fair market value” for that piece of real estate, on that particular day, is not really known. Depending on the size of the real estate, you could say five, you could say ten, a seller might say twenty. An auctioneer should note and buyers need to understand that there needs to be a minimum amount of qualified bidders in order to facilitate the auction and have a fair playing field. Anyone care to comment?
Condominium owners, both individual, bulk, and the actual developers are increasingly turning to auction as a means of disposition. The question remains, who is the most successful at auction amongst these sellers? The answer is: the group that controls the market.
An individual condo owner in a condo project full of availability faces a huge obstacle when turning to auction. The bottom line is that no matter what upgrades, finishes, views, etc that make that unit more unique, a buyer would rather walk down the hall and enter into a negotiated transaction with a neighbor than bid under traditional auction terms- “as-is, where-is”, 30 day close, no contingencies and so forth. The only card that the individual one unit owner holds is price. Depending on how many units are available, these types of sellers can expect a huge discount- 25% or more. Individual sellers are turning to the auction method since the quick close and cash settlement is attractive enough.
Auctions that offer all of the available units in a project certainly have a huge advantage. There is no where else for a buyer to go since they are buying in a controlled marketplace. The discount rate, if at all, may be minimal.
Recently, however, slowdowns in the overall marketplace have effected condominium project auctions. A recent auction of 24 units in a project in NJ was quoted as having been “a great deal for buyers”. At prices about $100,000 to $150,000 less than similar units sold for a year ago, we would tend to agree. The fact remains that the seller in this case was able to unload their units and this is in part due to their control of the marketplace.