ShareThisBy MARILYN BOWDEN
Tuesday, November 14, 2006
As the nation's residential real estate market cools down, condo auctions are heating up. A penthouse in Denver's Cheesman Park that had been languishing on the market for two years was recently auctioned off in less than 5 minutes for $1.935 million.
According to the National Auctioneers Association, residential real estate auctions represent the fastest growing sector of the auction industry. The number of residential auctions was up by 8.4 percent in 2005 and another 4.4 percent in the first half of this year.
Across the country, developers and owners are opting to hire professional auction houses to sell residential condominiums rather than wait indefinitely for them to sell by traditional means. There is good reason for condo owners to seek alternatives. While sales of single family homes dipped 1.6 percent in September, condo and cooperative housing sales dropped 3.2 percent, according to figures just released from the National Association of Realtors, signaling that the condo market is lagging other types of housing in a recovery.
In a changing market where last year's prices might no longer make sense, auctioneers say public auctions can determine today's true market value. Buyers appreciate the chance to see what others are willing to pay -- and you never know when you might be able to snap up a real bargain.
The seller's edge:
"An auction is a great way to avoid long-term carrying costs on a property," says Scott Kirk, senior marketing consultant with Grand Estates Auction Co. The company, based in Charlotte, N.C., specializes in luxury residences.
"The sellers know when the property will be sold," he says, "so they have an end date, and they can set a reserve price and feel comfortable that they will not be forced to sell below that."
About that reserve price -- sellers should be sure they would be willing to accept it as the final sales price, says Alan D. Wallace, a real estate attorney in Sherman Oaks, Calif.
"If a condo is worth $200,000," Wallace says, "many auctioneers will tell the seller he has to set a minimum bid of $130,000 in order to get enough people to come. Theoretically, in the auction frenzy it will be bid up to a price much higher than that. But, it could end up selling for a lot less than the owner thinks it's worth."
An alternative to a reserve auction is an absolute auction. In that scenario, the property simply goes to the highest bidder, regardless of price. The absolute auction obviously exposes a seller to more risk, but from a buyer's perspective, the tantalizing possibility of getting a really good deal can be irresistible.
Since an auction is a one-shot deal, marketing it is crucial. "We know a property is going to be sold 30 to 45 days from the day we list it," says Tommy Williams of Williams & Williams in Tulsa, Okla. "Therefore, we are going to spend a very serious amount of money to bring the public's attention to it in plenty of time."
The buyer's burden:
Auctions are fast-paced, competitive events, says Annette Elms, owner of Jupiter, Fla.-based Christenson-Elms Auction Group, "buyers can get caught up in the hoopla. So they need to do their homework and come prepared."
Bidders must present a cashier's check in order to qualify for a given auction, she says, and the winning bidder has to put down 10 percent of the price in hard cash on the day of sale.
"We have open house every Sunday afternoon for three successive weeks," Williams says. Be sure of what you're getting, he says. A buyer "might want to bring in a building inspector, because ultimately, due diligence is the buyer's responsibility. If it's going to be your house, you need to be doing the checking."
"At most auctions, when the gavel goes down, the sale is final," Wallace says. "When you're buying a home by traditional means, you have a 20-day contingency period to bring a home inspector in, look at the title report and so on. But when you buy at auction, there is no contingency. That's a big difference."
A buyer's research should include legal issues as well as the property's physical condition, says Helio De La Torre, an attorney with Siegfried, Rivera, Lerner, De La Torre & Sobel in Miami."Make sure the title is clean," he says, "and know what the conditions of the auction are."
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The benchmark 30-year fixed-rate mortgage rose for the third time in four weeks, rising 0.04 percent to 6.46 percent, according to the Bankrate.com national survey of large lenders. The mortgages in this week's survey had an average total of 0.35 discount and origination points. One year ago, the mortgage index was 6.24 percent; four weeks ago, it was 6.29 percent. The 15-year, fixed-rate mortgage rose 6 basis points to 6.16 percent. The 5/1 adjustable-rate mortgage went up 4 basis points to 6.28 percent.
