Wednesday, December 12, 2007 at 05:48AM
Let's Auction!
The auction format is becoming more popular - but is it working?
In the 92067 zip code, which covers the greater Rancho Santa Fe area, there are three examples this year.
7396 Turnberry Ct. is a 5 br/6 ba, 8,572 sf house built in 1993 on a .69-acre lot in the gated community of Rancho Santa Fe Farms. The sellers had paid $1,900,000 in 2000 and hadn't hit the housing ATM much, so they had plenty of equity. They tried selling the traditional way, listing their house with a prominent agent for $3,595,000 in June of 2006.
No price reduction, and no sale after six months.
In March of this year, they listed with a different agent on an auction format. He mentioned that the "minimum suggested bid to be $2,790,000" and after 30 days it will be sold to the highest bidder.
It closed for $3,200,000, cash.
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14723 Calle Carla is a 4 br/3.5 ba, 3,052 sf house built in 1986 on a 1.18-acre lot in Rancho Diegueno Estates. The sellers had originally listed it for $2,400,000 in July, 2006, and after 14 months of trying they were down to $1,775,000, and still no sale.
They hire a new agent, and he puts it on the auction format, with "minimum suggested bid to be $1,299,000".
The agent said that 100 people attended the auction on November 11th, and of those, there were 22 active bidders. In seven minutes it was over - and he said it closed this week for just under $1,620,000.
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Another one is coming up at noon this Sunday in Fairbanks Ranch. 17265 Camino De Montecillo is a 6 br/6,5 ba, 6,981 sf house built in 1991 on 1.1 acres. The sellers listed in May, 2007 for $4,799,000, and when that listing expired in November, they were on the range $3,895,000 to $4,295,000.
They changed agents, and the "suggested opening bid" is $2,699,000.
According to the MLS, none of these agents have sold a house in 92067 before, and they aren't doing anything "special" as far as marketing - the listing agent on Montecillo is using the color prochures left over from the first listing, with the other broker's name on them.
Yet, the first two got pretty close to retail, if you ask me.
I'm adding the auction format to my repertoire next year. It is a smart way to go for sellers - in a declining market, you want to sell early on - the longer your house is on the market, the more resistance from buyers to pay what you're asking.
Three strategies of selling:
1. Auction
2. Lower price early and often.
3. Wait for lucky sale.
Number two is the slow-motion version of number one, you might as well just do an auction and get it over with in seven minutes.
The sellers only pay for their representation, the buyer's agent's commission is added on top of the highest bid - an efficient way to handle costs. The buyer's inspections happen before the auction date, so there is no quibbling over repairs after acceptance - a headache saver for all.
Our friend/client Roger is from Australia, and he said that 30% of all homes sold there are done by the auction format - it's an accepted practice there.
I'm going to go to this one on Sunday, anybody want to go with me?
Jim the Realtor
in Thinking of Selling?
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Reader Comments (9)
"Number two is the slow-motion version of number one, you might as well just do an auction and get it over with in seven minutes. "
To say nothing of the benefit of not sitting with an unsold property while prices continue to decline.
Of course you actually have to get people to the auction. It takes a lot of faith on the part of the homeowner that you can make it work.
JtR: Forgive me for asking, but what happens if the buyer at auction does not bring in a "buyer's realtor"? Can they make there bid 3% better by being commission free? Or, what if the buyer is a broker/realtor? Same question ...
I live in La Quinta which is near Palm Desert. I am a mortgage broker and have access to the MLS. Prices in my neighborhood have dropped from a bubble high of $260 per ft. to about $200 according to the latest contracts. A neighbor put his up for auction with a minimum bid of 200k or about $117 ft. .The auction was well publicized for several months and drew a large crowd last Saturday. Of course I was curious. I expected to see a bid that would come close to 200 per ft. Bidding stopped at 152 per ft. Most bidders don't know the difference between an absolute auction and one with a reserve. The seller balked at the price and did not accept. I'm wondering if the bid is really the new comp for my street. It is all happening so fast.
Auctions are so common in Australia that they provide a widely accepted metric for the health of the market.
Auctions happen every week, good markets and bad. The proportion of those that sell prior to auction (happens often in a hot market) or sell at auction represents the 'clearance rate'. Those that do not sell are called 'passed in'. Right now, the clearance rate in Sydney is around 70%, which is great. After the bubble burst in 2004 it fell to 35%.
Auctions always seem to have reserve prices. If a property doesn't make its reserve it is customary for the highest bidder to have first right to try to make a deal with the seller after the auction. No obligation for the seller to accept, though.
You can find some basic statistics here http://www.homepriceguide.com.au/auction_results/index.cfm?source=smh
and a recent commentary here http://www.smh.com.au/news/australian-capital-territory/spring-in-sales-not-dampened-by-election/2007/12/05/1196812798389.html
Very interesting to note that the bifurcation of the market (prime areas vs. working class areas) continues, and has recently become more apparent. Non-prime areas have yet to recover from 2004 and continue to fall, Core, prime areas are back to 10% YOY growth despite multiple interest rate increases. If rates go up much more it will nail prime areas too IMHO.
Being from Australia, auctions have led to higher prices in a boom. Just imagine this last bubble if people were bidding against each other! They used to allow the realtor to use agents to bid up the price. Thankfully they changed the rules in 2003, but hard to enforce or catch. Also the min bid price is artificially low to fool buyers into thinking they can get the house for near the beginning bid. Also reserve prices are set higher so no risk to the seller. Buyers will make offers before the auction which seller can accept. Spend your saturday running around to find the house was sold the night before!
Also need to inspect before auction. I like the California offer/negotiate system. Gives a better view of the real value of the house.
LMAO @ the last two pictures. Whoever designed the interior must have really liked Alice in Wonderland.
I like the first one, but for $3.2 mil I'd better be getting a harem with it. If I ever have that kind of cash I'm sure I'll die of a cocaine addiction long before making that big home purchase.
Smithers,
With regards to the buyer paying his own agent's commission (or not), the agent better have a written agreement with the buyer before getting to the auction.
Can you imagine that conversation?
Auctioneer: Congratulations, you're the winner!
Winner: Great, here's my earnest money.
Auctioneer: You'll need to increase that if you're adding your agent's commission on top.
Winner: What agent?
Agent: Oh no, not again.
It would be interesting to find out about one technicality - I'll see if I can get a clarification on this one Sunday. There is an auction house sponsoring the event, and the brokers have the ability to register their buyers. Does registering your buyer's name with the auctioneer, guarantee any commission to the broker? If it does, I'm going to send in the White Pages on the next one, and hope somebody in there buys the house.
What in the living hell - are those kitchen cabinets spray painted silver??