After several weeks of hype and garish "auction" signs all over town, Sunday, it was time for 5
new homes to go to auction. (See "Name Your Price?
" for our first story on this last month.)
The first 2 up for consideration in the morning were in Hermosa, 540
and 544 21st
, in the pleasant Hermosa Valley area.
The auctioneer began the bidding on 540 21st, and got an immediate bid
at the auction minimum price ($1.649m
), down from its $2.995m
start in early 2007.
That was the last public bid.
No one bid against the first person for 540 21st. That start price was surely below an unknown "reserve price" in the mind of the builder/seller. They'll have to work it out.
Then 544 21st drew no bids at $1.669m
(it also began at $2.995m, according to the flyers).
In front of 100 people (plus kids & dogs) and a few paddles held by registered bidders, the auctioneer tried to entice a bid by lowering the price to $1.5m
. No takers. One bidder signaled that he might bid at $1.4m, but the price never moved that low. Then it was over.
And so it went the rest of the day.
The next auction, at 2509 Palm
– a new home reportedly crawling with realtors, neighbors and assorted snoopers – was postponed at auction time. Though the house was full of people, no paddles were present. Three hours later, the rescheduled auction was never opened to public bidding.
We won't know for a while how far this one might fall from its literal twin at 2509 Walnut
, which sold at $2.025m
in late July. The auction start price on Palm was to be $1.499m
, definitely on track to be a new low for new construction.
Public auctions never got under way, either, at 1211 11th
) or 1405 Faymont
Now, if 4 out of 5 homes up for auction did not draw a bid, and the only bid publicly made was below the reserve price, the operation sure looks like a complete
failure. But it depends on what you're looking for in these results.
From the auction company's perspective, this looks like pretty bad news. The auctioneers were to draw a 7.5% "buyer's premium" on top of the selling price for each home. The combined premiums on the minimum
prices on the 4 homes that did not draw public bids would have been more than $450k
. (The individual homes are represented by other agents, so a deal outside the auction context could spark a tiff.)But the bigger question is:
Did the auction process, with all the attendant marketing and hype, draw new buyer interest in homes that had gone moribund on the market months and months ago?
On that score, we're told the answer is yes.
Indeed, the answer to a question posed recently by Blake Roberts: "Real Estate Auctions in Manhattan Beach – Deal or Marketing Angle?
" would appear to be: "marketing angle."
Despite the lack of public bids, there's talk that "most" of the 4 no-bid properties now have serious interest, and deals could be made within days. That would validate the auction strategy, despite the depressing silence at the public events Sunday.
We'll see what happens. You can bet that some privately arranged deals will fall below the auction start prices, and some will probably become short sales.
A little-noted casualty could be the builder/seller's taxes. His timing – auction Nov. 23, mandatory close within 30 days – suggested an effort to take any losses in 2008 to balance against any profits for the year. Non-auction deals may close in 2009, providing no benefit this year.
In sum, why did the public auctions fail? Pick your issue:
Location, price and timing stand out.
The MB homes were in off locations.
Prices were low compared to the high start prices, but not rock-bottom low enough to look like steals – the supposed point of an auction.
And timing looked pretty awful, too – the financial markets keep getting worse, and buyers are understandably skittish about their own money and jobs, not to mention feeling less than certain that they could close these deals, as required, within 30 days.
Blake Roberts called the auctions "a tremendous, below the belt blow to our local market," expressing a fear that auction sold prices would be artificially below market, due to the 7.5% "buyer's premium." Successful auctions could serve as comps driving prices down faster.
Turns out that's not the problem.
But this builder's rapid unloading of properties could well refute his own claim, made in those "crystal ball" ads
he placed in January, that prices "will not and cannot come down another 10% this year." On this inventory, they could, and did – and it still wasn't enough.