When the auction of the 29 Luxury Waterfront Residences at Waterplace was announced I immediately contacted a few of my clients on the market for a downtown condo.According to National Association of Realtors there are essentially three types of Real Estate Auctions: 1. Absolute Auctio (Or auction without reserve): An auction in which the subject property is sold to the highest bidder regardless of the amount of winning bid or price with guaranteed sale of the property. 2. Minimum Bid Auction: An auction where auctioneer will accept bids at, or above a published minimum price which is advertised and announced in advance. 3. Reserve Auction (an auction subject to Confirmation): An auction where the highest bid is reduced to an offer and not a sale hence the seller reserves the right to accept or reject the highest bid within a specified time.
The housing bubble burst over the past few years has introduced us to some heretofore unfamiliar words such as short sales and loan modifications, but has also re-introduced us to some familiar words such as real estate auctions. We have recently seen auctions penetrating the RI market. When luxury projects like The 903, Union Wadding lofts or the Waterplace Downtown Providence choose this route of real estate sales it creates a buzz, curiosity, uncertainty and, in some cases, fear amongst not only buyers and sellers but also amongst the community unfamiliar with the method. This fear is driven by the negative connotations and common misperceptions that surround real estate auctions. Many consumers believe that real estate auctions are a direct result of foreclosures and/or distressed property inventory and that they affect the local market negatively.
When the auction of the 29 Luxury Waterfront Residences at Waterplace was announced I immediately contacted a few of my clients on the market for a downtown condo. My clients’ reactions to the news were both excited and fearful, and they had many questions. In order to clearly understand the implications and effects of real estate auctions, Geo Properties contacted Justin J Manning, President/CFO of JJ Manning, a leading professional auction marketing firm in the Northeast that was established over 35 years ago. (Learn more about the JJ Manning Auctions on: www.jjmanning.com) I have included Justin’s responses to some of our most commonly asked questions below:
Geo Properties: Is it concerning when you see an increased trend of auctions taking place in a market and does that negatively impact the market values?
Justin Manning: The auctions create momentum and stimulate the market. Prices are currently depressed due to the lack of lending and the economy, not due to any auctions. Auction forces the “cash” buyers off of the sidelines and allows for non-contingency transactions to occur. If people need to sell now, then auction solves that problem. If they need to sell at a “wish” price, then they will have to wait 3-5 years.
Geo Properties: What are the common myths about auctions that you come across?
Justin Manning: A property could sell for $1.00. This is a myth which is squashed by the strong auction marketing conducted, the turnout and the subsequent competition. It just doesn’t happen.
Geo Properties: How are auctions beneficial to the owner/developer?
Justin Manning: It allows them to fill up empty units. It allows them to make payments to their lenders. It allows them to define the terms and closing period for the buyers.
Geo Properties: This brings me to the question who is the best candidate for an auction?
Justin Manning: A motivated client with saleable real estate who wishes to sell quickly…. and who also has some equity.
Geo Properties: Any other comment/message I should convey to the sellers as well as buyers?
Justin Manning: Demand more information. An auction listing just an address is not an auction. That is a technical exercise. See what bidder information is available from the auctioneer to allow you to bid with more confidence.
Auctions are not always bad. As a matter of fact, for sellers, developers, and builders an auction can be a fast and cost effective way of disposing of the real estate, reducing the long-term carrying cost, taxes, maintenance etc., and creating healthy competition. For buyers it can be a smart investment acquired at fair market value by avoiding long negotiations and haggling process. Overall, auctions are often a useful tool for both buyers and sellers to acquire or dispose of properties.
In addition to clients interested in bidding on a to-be-auctioned property, multiple previous clients and other downtown residents concerned about how this will affect their property values have approached me with some excellent questions. If we examine the immediate downtown area in the past ninety days, several high end condominium units were sold at The Residences on 1 Exchange Street, The Cosmopolitan located on 100 Fountain Street, Chestnut Street Condominiums, and at the Waterplace Residences, to name a few ranging from $320,000 to $1,700,000. This auction will hopefully prove to be an effective means to clearing and reducing the immediate area inventory, thus causing currently stabilized prices to appreciate. This theory is similar in concept to hotels initially selling a set amount of rooms at a rate below “rack” and then ratcheting prices upward as the supply lessens. Eventually, as demand outstrips supply, those subsequent market entrants will pay the highest prices. Going back to the basic economics that low supply and high demand equals price appreciation. Additionally, the resulting influx of new homeowners in the area is beneficial for the city, as it increases revenue in terms of property taxes and creates a market for home appraisers, lenders, decorators, etc, even real estate professionals such as yours truly.
The Waterplace Residences were developed by Intercontinental Real Estate of Boston. Built in 2008, it offers two 19 story towers with 193 different floor plans, layout and sizes offering spectacular views and originally priced at $400,000 to mid $2,000,000 range.
On October 17th, Geo Properties attended the auction held at the Renaissance Hotel Providence and led by Accelerated Marketing Partners. The minimum bid price announced and published was as low as $175,000 for 1bed, 1 bath units and as high as $995,000 for some of the penthouses. The auctioneer did not allow the developer to bid, prohibited multiple unit purchases, and did not charge a buyers premium. It was announced at the beginning of the auction that some additional units were to be added to the existing list with the same minimum price as other similar units. The units added later on were 1bed/1baths located on the floors below already sold units. The highest bidders on the later added units were given 48 hours to inspect the units. However, half way through the action, after the sale of about 12 units, the auction was stopped and a fair market value was established based on the units already sold.
One of my owner occupant clients attending the auction with me subsequently had the option to choose from the majority of her favorite units at a set a price. However, one of my investor clients decided to pass as he was interested in bidding only. The 1bed/1bath units sold between $200k-266k and the 2bed/2 bath units were sold in the low to mid-high $400 range (still a pretty good deal!). The sellers also decided to discontinue the sale of the 2bed/2bath with balcony units as the broker of record is now planning to re-launch the units with newly established prices.
My client left the auction both ecstatic and as a very happy homeowner to be. Because she was fully informed and educated on the method, she thoroughly enjoyed the bidding process without fears!