As housing markets across the country flounder, many owners and developers are turning to auctioneers to help sell their languishing properties. Alison Gregor of The New York Times writes today that Auctions Are Aiding Sales in a Weakened Market.
It has been 15 years since real estate auctions held by property developers have been commonplace, but in the current torpid real estate market, they’re starting to re-emerge in cities throughout the country.
Gross sales revenues from auctions of residential, commercial and industrial real estate grew by about 5.2 percent in 2007, to $32.6 billion, according to the National Auctioneers Association, and there are indications that the number of real estate auctions involving multiple condominiums will be much larger in 2008. For instance, Accelerated Marketing Partners, a real estate marketing firm with headquarters in Boston and in Danville, Calif., has held 25 auctions thus far in 2008; in 2007, it held two all year.
Just further evidence that price overcomes all obstacles. One developer’s tale:
So, with published minimum sales prices for one-bedroom apartments of $170,000 and two-bedroom apartments of $250,000 (a reduction of about 40 percent from the last asking price), the auctioneers sold about 30 units — about half of them one-bedrooms — at an average auction price of $244,200. About 100 people attended the auction.
But it is imperative that the auction strategy is planned and implemented correctly:
“The price points were less than I had thought they would be,” Mr. Kuhn said. “One of the mistakes we made was starting off with the best spaces first, because people were unsure of how the auction process worked. That meant the auction pricing on the best units moved very slowly, and then locked in at a low price that became the cap for the auction.”
Are we going to start seeing auctions here in the Manhattan market?
It remains to be seen if New York City developers will feel the need to hold property auctions. Louise Sunshine, a real estate development consultant, said she was able to improve property values with auctions held in the late 1980s at residential developments like 52 East End Avenue.
“Auctions are more useful when the market is at a dead halt,” she said. While auctions can provide momentum for a marketing program, “they have to be used very carefully,” Ms. Sunshine said, “because the word ‘auction’ could connote distress. Developers could use some other marketing terminology, like maybe a ‘sealed bid sale.’ ”
The irony here is that during the housing boom of the last decade, I and many of my colleagues relied heavily on the "auction type" atmosphere to successfully market and sell property. When more than one person perceives value in a home and they all bid, there is no telling what the winning bid will be but it is often a number that positively surprises both the seller and their agent. They key once again to creating the perception of value is to aggressively price the property to appeal to a larger pool of buyers. A tricky task in today’s less heated market.