Name Your Price?

By Dave Fratello | October 22nd, 2008

We must be entering another new phase in the local real estate market.

Next month, 5 new homes by the same builder will be sold at auction on the same day.

These are not foreclosure auctions or bank-owned properties, mind you. These are active listings (or recently active) that simply haven't been moving in the traditional way – listing on the MLS, re-listing, dropping prices, rejecting lowballs then begging for "all reasonable offers."

So now it's time to let buyers name their prices.

Of these 5 homes, 3 are in MB (only 1 west of Sepulveda) and 2 are in Hermosa. All of them were originally priced above $2 million, but all will start well below that on the day of the auction, Sunday, Nov. 23:

  • 2509 Palm, MB, is well-known to MBC readers, if only because it has been listed for 550+ days, starting April 19, 2007. (It was also featured in "Palm Blues" in July when the construction loans went into default.)
This is a standard Tree Section newbie with 5br/4ba, 3200 sq. ft. located on a short, private cul-de-sac street sandwiched between Marine and Ardmore.
During the Spring Rally of 2007, when this one first hit the market, it began at $2.449m. Its twin, one block over at 2509 Walnut, hit the market at the same price in July 2007. Both adjusted down, but Walnut made a deal and closed July 25 for $2.025m.
Similar Tree Section newbies by the same builder recently have sold for somewhat less (2309 Pacific: $1.890m, 2611 Palm: $1.850m).
The lot at 2509 Palm was purchased for $1.12m in Dec. 2005. The home was last priced at $1.949m, but its auction start price is $1.499m.

Yes, that's almost $500k off the current price, and quite nearly $1m off the start last Spring.
  • 1211 11th (5br/5ba, 3325 sq. ft.) hit the market in Aug. 2007 for $2.149m.
The price has stayed relatively high despite the lack of action over 400+ DOM. It was last at $1.995m.
Lot was purchased for $925k in June 2006. The auction start price for the completed home is $1.450m.
  • 1405 Faymont (5br/5ba, 3550 sq. ft.) lists a construction date of 2007, but we don't have the listing's true start date. (Click here for more pics than are offered in the newly posted listing.)
We do see it was once priced at $2.095m, but was most recently at $1.699m.
Lot was purchased for $930k in March 2006. The auction start price is $1.399m.
Both hit the market in Summer 2007 at $2.499m, and drifted down to $2.289m.
540 begins with an auction start price of $1.649m (-$850k/-34% off start), and 544 has an auction start price of $1.669m.

The discounts here are a minimum of $700k off the start prices, and run as high as $950k off.

Those new numbers are enticing, though, as with any auction, you can't be sure where the true "reserve price" is on any given home. The agent coordinating these auctions insists that the reserve prices on these are "very realistic."

And don't forget that you, as a buyer, pay the costs of this auction process.

You're used to paying 5-6% on a standard transaction, but that normally comes out of the sale price. It's almost invisible.

In an auction, you pay a premium on top of the agreed-upon sale price. On 540 21st, for instance, the "buyer's premium" is listed as 7.5%. If you grabbed that one for the auction start price of $1.649m, the "buyer's premium" would be a not-insubstantial $124k.

Finally, if you win the bidding, you darn well better close. You could lose up to 10% of the agreed-upon price as a penalty for not closing.

As you get down into the details, these auctions are not simple transactions. They're potential bargains for highly qualified buyers.

After all, the seller is not having an easy time here, with limited profits or actual losses on these speckies gone bad, so the buyers aren't going to be given a free ride, either.

If you can put it all together, though, maybe you can name your price.

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