Property Auction Blog

For the last few years we’ve seen auction companies go from single asset auction events to multi-property events that contain sometimes tens if not hundreds of properties.
Mostly the residential auction houses enjoyed the larger multi-property events but now we’re starting to notice that commercial auction events are getting larger. Is this a sign of a turn in the commercial real estate markets or just spillover from the carnage over at residential? The answer is that it’s probably a little of both.
Most notably, Tranzon is conducting a 14 commercial property auction event at the end of the month that will take a few days to complete. The auction is “lender ordered” so typically that means great deals for buyers. The auctions are being performed on site which allows buyers to really kick the tires just prior to bidding, a practice that seems to be beneficial for everyone involved.
Other auction firms are following suit by offering commercial properties in bulk to investors who have been waiting for their opportunity to swoop and scoop. Most properties being offered however, seem to be outside of major markets that enjoyed a nice run up in valuation these last few years.
We expect this trend of commercial grade properties being offered at public auction to continue upward for the next several quarters.

Seems like realtors are trying more and more to get in on the auction fun these days. Many realtors are partnering with auction companies to get their client’s properties sold with the time-defined auction method.

Some realtors are holding on to properties for 6-12 months these days with no end in site. The question is: What is best for the client’s objectives? We know some realtors will take that exclusive listing to the grave but this practice is often not in the client’s best interest.

Rowell Auctions out of Georgia is conducting a multi-property auction sale “in cooperation” with two realtors, ERA and Prudential. Last month’s realtor magazine had a column about the subject as well, getting the message out there (from Steve Good) that auctioneers are not your competition, they are your friend.

So it seems to be that partnering with an auction company to get that listing sold is a pretty good idea. We are hearing that owners are actually contacting auction companies to have them talk to their exclusive broker about partnering on the sale. Word of advice to brokers: call an auction company before your seller does! Look for several more auction sales like this in the next few quarters.

It’s been a while- 25+ years or so since the big condo sell off craze of the 1980’s. Auctioneers are warning developers to think about the mistakes that others made at that time and don’t get caught with a building full of empty units. Those who did back then, paid dearly for it.

Marsha Wolak Auctions is putting on an auction of condo’s on the east coast of Florida in early February. A minimum of 10 units are being sold absolute. It seems like these are the last 20 units in a 250 unit complex, the developer is probably just trying to close out their position. This certainly spells out good deals for buyers as the “absolute” offering really gets the juices flowing.

Developers are listening- From Florida to Maine, from New York to California, here we go again. Advice to buyers: pick up as many as you can hold until the market turns. Advice to developers: sell as many as you can in one shot to get your cash out and move on to another project.

If you’re a celebrity or just going to jail in a heavily media covered case, you might benefit from a real estate auction. Although the seller of Michael Vick’s dogfighting compound failed to sell, the “developer” who bought the place certainly got a lot of attention for the sale. Jack Welch was successful in selling his CT property at auction. The property lagged on the market for 3 years before he turned to auction to get it sold quickly, definitely using his notoriety to attract attention to the sale.
Meanwhile, the seller of the Vick property rejected a bid of close to 300K more than what he bought for a few months earlier from Vick. Somebody needs to let him know it’s not 2005. I’m sure Vick isn’t going to be happy when he gets out of prison, having potentially left that kind of cash on the table.
We just saw another famous guy, (well, made famous by insurance fraud) put his property up for auction. It didn’t seem like a forced sale, since Robert Stokes has “set a minimum” for the auction. It’s getting a lot of media attention and that might well drive up the price.

Some sellers these days that are behind on their mortgage or in the foreclosure process have very few options when it comes to dealing with their lender. Turning to an auction company before a foreclosure occurs might be the answer.

We are seeing a lot of “pre-foreclosure auctions” out there. This means that the auctioneer has contracted with the debtor to sell the property at a reserve price in one of the following methods:
1) above the mortgage amount owed
2) below the amount owed but with the seller making up the difference at closing
3) at any amount on paper and then going to the lender and negotiating a short sale.
In scenario 1 every one is happy. In scenario 2, everyone may be happy however the seller will have to come to the closing with a check, most people don’t like to do that or simply cannot. If the seller has nothing to lose, such as their credit, they would rather skip this scenario and just throw the keys back to the lender.

Scenario 3 is one that is becoming very popular in today’s market. The auctioneer will bring the executed contract to the bank and figure out if they can get the bank to take less than what they are owed based on what was obtained at the auction. The important item to note is that most banks will not negotiate unless you have a contract in hand and that’s what the pre-foreclosure auction procures. The sale, of course, is subject to the lender’s approval and this might take a while so buyers are encouraged to hang in there while the auctioneer does the work to get everything resolved. This may be a long process that includes at least one or more appraisals, broker price opinions, and a thorough evaluation of the debtor’s particular situation. Most auction companies have already gone through this process with the lender so many of the items required for a short sale are most likely checked off.

Since the auction process, if executed correctly, achieves the highest price in the shortest period of time through competitive bidding, the pre-foreclosure auction is an excellent option for any debtor that meets the criteria.

Some auctioneers in certain pockets of the country seem to be constantly changing the terms of sale. With the changing markets this is to be expected but how does giving the seller the right to think about the bid for a certain period of time affect the auction?

In the past we have seen the option for the seller to think about the bid for up to 24 hours before having to confirm acceptance however buyers are really starting to grow weary of leaving their deposits in this often times unfruitful exercise. Buyers claim the sellers should be under the same pressure as them to make a decision on the spot.

“The auction will not be absolute, the [sellers] will have up to 10 days to review any offers made on the buildings before they reject or accept the offers.” This is a little much for a private individual seller or small group. This scenario would be more understandable for an institution or a lender in a case in which the bid comes in below what was acceptable and several committees need to sign off on accepting the low offer.

Typically buyers come in at a number considerably below what they had bid (or were willing to bid) at the auction in the “post auction” market. No real data is available to be able to affirmatively state whether the practice of letting the seller “think about it” is helpful in getting properties at auction sold or not.

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.

In England, sealed bid auctions are becoming more and more popular. In the USA, sealed bid real property auctions are still viewed with a wary eye. The National Auctioneers Association doesn’t even consider the sealed bid auction to be an auction. Here is how their glossary section defines sealed bid, “ A method of sale utilized where confidential bids are submitted to be opened at a predetermined place and time. Not a true auction in that it does not allow for reaction from the competitive market place”.

So, according to their definition there has to be some give and take, face to face. This lets bidders witness the processes and make more informed decisions about the true value of the property that they are bidding on.

In spite of the National Auctioneer’s Association definition, real property auctions are still being conducted and advertised as sealed bid real property auctions.

A sealed bid auction can work well for many unique situations. Urban areas with choice properties that are constantly in demand may resort to sealed bid auctions as a way to be fair, yet avoid the pandemonium that ensues in a hotly contested auction where dozens of bidders might show up determined to secure a single property. Sealed bids are also often used to distribute similar properties to multiple buyers. A row of identical townhouses or other similar properties can be dispersed at the same time, saving auctioneer’s fees and time by awarding successful bidders properties in the order of the highest bid. A sealed bid format may also be used for unique properties where the market value is difficult to determine or if there is a serious shortage of available properties in the area.

Buyers can be stung in a sealed bid auction because there is a tendency to over-bid when you can’t hear what other buyers are offering. The main rules of sealed bid buying are never offer more than you can afford to pay and never offer more than you think the market can cover.

Some of the biggest real estate sales in the world have been done using the sealed bid method. The one that comes to mind first is the 5.4 Billion Dollar Auction Sale of Peter Cooper Village in NYC. A Dow Jones report Oct. 17 said it was the largest play for a single property in U.S. real estate history. Bidders were reportedly staying away fearing that the price would soar in this auction for this unique property- and it did.

While the National Auctioneer’s Association may not consider a sealed bid auction to be an auction, Fred Greder, a certified and accredited appraiser for Marketing Consultant Benchmark Agribusiness, Mason City, IA offers a great list of do’s and don’ts for sellers that want to use a sealed bid auction to market their property. In a brochure offered by the Iowa State Agricultural Extension Service he offers 7 do’s and 3 don’ts that are primarily geared towards sellers. He sums up his comments by asking the seller three simple questions; Is it appropriate? Have you created awareness through proper marketing and advertising? Can you keep the bidder’s adrenaline pumping? According to Mr. Greder, if you can answer yes to all three of these questions you are good to go.

Buyers and sellers at auction often comment how real estate auctioneers must really be thriving in a down market. With the amount of forced sales, foreclosures, and other situations related to the recent downturn in the market you would think this is the case but we hear a very different story.

The truth is that auctioneers and real estate brokers are affected by the markets in the same way. Inventories have certainly gone up for real estate auctioneers but they have also gone up for brokers. What is really selling? Well, not a lot. Seller expectations are still very high and therefore even properties that are brought to auction are not moving as quickly or as high as they did in the better markets of the past 5 years.

If you sold a property within 5 days of listing it in the hot market with a real estate broker or private treaty method you most certainly left money on the table by not using an auction. Sure, you had a bidding war amongst the first wave of people that made it over to see your property but did you really get the highest possible price, we think not. By gathering all of the people interested in a property on a particular day preceded by an intense but relatively short marketing period, you can be sure that you’ve obtained true market value under current market conditions with the use of an open outcry public auction.

Please let us know your thoughts on the subject…