Bidding on Property: The Scene at a Condo Auction

• November 19, 2008
• 4 Comments

by Mark Wellborn

The Ashmore in Germantown

(This is the second of two articles we have written that focus on condo auctions. The first article was published last Friday.)

Last Sunday, about 150 people showed up at the Hilton in Rockville to try and scoop up a brand new condo (or two) at a heavy discount. The Ashmore in Germantown was auctioning off a good portion of their remaining inventory well below their original list prices that ranged from $322,000 to $385,000. The prospect of getting an amazing deal on a new condo attracted both would-be homeowners and amateur real estate investors.

When the three-bedroom condos were put up for auction around noon, the opening bid rocketed from $150,000 to $200,000 in a matter of seconds, and all indications were that this event was going to be a buying frenzy. However, after the first condo went for $215,000, the next dropped to $205,000 and the next to $194,500.

As the final bids began to hover around $190,000, the developer, Fairfield Residential, pulled the rest of the three-bedroom units out of the auction. But before doing that they offered a “step-up” sale for any of the remaining units, which meant that a buyer could purchase one at the price of the last winning bid ($197,000). There were no takers.

“The seller could not have been pleased with how the three-bedrooms sold,” area broker James Edwards of Edwards Realty told UrbanTurf as he looked on.

It is important to understand that the bidders were not bidding on a specific unit at this auction, but rather on the ability to choose from the available pool of remaining units. The resulting dynamic was that the winning bid fell a little bit as the supply dwindled.

While it certainly seemed like a good deal to get a three-bedroom condo that was initially listed on the market in the high $300,000s for around $200,000, Edwards was skeptical.

“There’s a guy in this area (Germantown) who bought a three-bedroom condo for $314,000 in January 2007, and then put it on the market some time later for $334,000,” he said. “He has steadily been lowering the price for about a year now, and on November 13th, it was at $199,000. Even though it is not a brand new home, it may be a better deal because the buyer of his property does not have to pay the ten percent buyer’s premium that they would have to pay for units at this auction, and (the seller) is offering to pay an agent three percent to represent the buyer.”

The hidden costs at auction can surprise a winning bidder. There is usually a buyer’s premium (around ten percent) that goes to the auctioneer, and then transfer costs and closing costs. So, the final outlay on a $215,000 winning bid can be upwards of $250,000.

After the three-bedrooms, the two-bedroom condos were put up for auction. The first one on the block was bid up to $192,500, the next went for $187,500, and the prices continued to drop after that. The last two-bedroom sold for $169,000.

The final bid for any of the properties at auction immediately readjusts the value of the properties in the development to that dollar amount. Many argue that this really hurts buyers that have already purchased at the auction because it has the effect of erasing their equity.

“They just lost twenty grand,” Edwards said, pointing to the people that had won an auction for a two-bedroom condo at $192,500 after another went for $169,000 thirty minutes later.

The only one-bedroom condo put up for auction was a 543 square-foot unit. The bidding started at $95,000. Not a single bid was made, though. It’s a deafening silence at an auction when someone asks for a bid and no one raises their hand.

It was clear from the cautious bidding on Sunday that buyers have become wary after watching real estate prices plummet over the last two years — and the stock market plummet over the last two months. What’s more is that the general feeling was that this is just the beginning of auction season.

“More are coming,” a spectator noted.

4 Comments

1. volpone said at 7:34 pm on Friday November 21, 2008:

   Hi Mark—I was there too, to spectate more than anything else.  I, too, feel that this is just the beginning and prices will be much lower after we see 15 or 20 auctions of this kind.  Will you be going to the Reston auction on Sunday?

1. Roy Kelley said at 7:06 am on Monday November 24, 2008:

   Bargain hunters do not need to wait for auctions. There are plenty of deals to be made in the inventory of REO properties.

1. Mark Wellborn said at 1:24 pm on Tuesday November 25, 2008:

   volpone,

   I won’t be at the auction in Reston on Sunday, but will likely be at one in the area in the next few months.

   Thanks very much for reading.

   Mark

1. Alisa said at 10:13 am on Wednesday December 3, 2008:

   Mark - Where’s the best place to find out about these auctions?

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