When the stock market fell, so did the real estate market, which was quite inopportune for the many developers with new construction in the works, particularly condominium buildings. Prospective buyers became more selective, and many simply ceased buying as the recession worsened. Rather than let new properties sit unused – and unpaid for – developers and real estate agents turned to the tried-and-true method known for jump-starting sales: the auction.
What exactly is a real estate auction? “A time-definite sale that puts an end to equity erosion, carrying costs (monthly mortgage payment, taxes, insurance and property upkeep) and price speculation by delivering true market value for the property being sold,” explained Amy Bates, senior vice president of marketing and operations for Williams & Williams, a residential real estate auction company.
From condominiums such as Cosmopolitan (404-815-0306, www.cosmocondos.com) in Buckhead, to single-family homes, real estate auctions have risen in popularity and frequency this year. February and March auctions at Element and Horizon, both conducted by Accelerated Marketing Partners seemed to start the auction chain, and the others soon followed suit.
“From a developer’s standpoint, the Cosmopolitan condo auction was beneficial because it helped jump-start our sales, which of course came to grinding halt in first quarter of this year,” said Morris Kaplan, president of Morris J. Kaplan Communities. “It helped us get sales going again and achieve enough to get FHA approval to provide 3.5 percent down-payments.”
He tells of a first-time homeowner who screamed at the auction because she was so excited that she could afford a unit at Cosmopolitan, and of a young teacher who only dreamed of living there before realizing that his meager salary could actually meet the auction prices. “To enable people to buy a home in a high-rise with a concierge at a very good price … it’s very moving,” Kaplan said.
Forty-three Cosmopolitan units were sold in less than two hours at the auction, and 15 more followed in the coming week. Discounts ranged from 25 to 30 percent, allowing $160,000 units to be sold for $130,000 and larger $250,000 units for $190,000. Kaplan said the company plans to continue selling at or near these prices until the last 40 to 50 units are sold, which, he hopes will be in the next 60 to 90 days.
“I was skeptical about [holding the auction] in the beginning, and it turned out well,” Kaplan said. “People were concerned about when we’d reach bottom or when prices would drop. By doing the auction, it allows the market to establish a fair price for the homes. It’s a win-win situation for everyone.”
President of Novare Group Jim Borders said auctions give other developers a data point to gauge their pricing against, and provide the auctioneers with a sense of what the market thinks of their product overall. He said the auctions keep condos “top of mind” for people looking for an in-town home or an opportunity to benefit from the current soft market. However, he admits auctions can sometimes create an image of distress for the real estate market.
Novare is the developer of ViewPoint (404-961-7180, www.viewpointmidtown.com) in Midtown, which has lowered its pricing to $170,000 to $190,000 for many one-bedroom condos. This pricing, Borders said, was determined through “competitive positioning against new homes, re-sales and even auctions.” Through this pricing and the “buy one, get one free” promotion, which allows buyers to acquire a two-bedroom unit for the price of a large one bedroom, 60 percent of the building has either closed or is under contract.
Likewise, Williams & Williams illustrates the power of the auction in speeding up a sale. On average, it takes 75 days from listing to close to sell a home through Williams & Williams Auction, whereas it takes about nine months to sell through traditional list methods. “Auction is arguably the most efficient, competitive and transparent method to sell real estate of all types,” Bates said.
The company has held more than 100 residential auctions in metro Atlanta this year, resulting in an average of 14 bidders per property, and the properties and potential buyers aren’t drying up any time soon. “We will continue to see increases in auction inventory. There is a major backlog of foreclosed properties across the United States which has yet to hit the market, and we need to get new owners into these vacant homes to help the market recover,” Bates said.