A “reserve price” spoils another auction – fromlatimes.com:
The auction of a custom-built mansion along Malibu’s “Billionaire’s Beach,” so named for its wealthy homeowners, hit a snag Sunday when it failed to generate an acceptable bid.
Although the bidding started at the minimum $22 million opening price, it stalled there short of the “reserve price,” the undisclosed value at which the owners are willing to let the property go. The sellers, William and Cheryl Chadwick, rejected the bid.
Now Westside Estate Agency listing agent Carol Bird and Premiere Estates Auction Co. are working on securing written offers from the four bidders and an international buyer who was unable to attend the event and will view the property this week.
The beachfront home was listed at $65 million when it first came on the market in 2008. The 10,500-square-foot house, built in 2005, has 150 feet of beach frontage.
Reader Jay saw that auction.com is now conducting trustee sales, and wanted the scoop.
It’s not surprising that lenders bloated with properties would be attracted to the allure of ballroom auctions. They seem like a great idea – let’s gather around a bunch of novice buyers in a big room and create a frenzy.
But the format is the same as buying at the court house steps, where you have to pay all-cash only, and no title insurance. At least at the regular REDC ballroom auctions they let you finance the sale, and close 30 days later with title insurance – which opens the door for the amateurs.
Most of the all-cash repo buyers are pros. They aren’t going to be persuaded by the usual REDC antics of guys in tuxedos running around like monkeys to distract you from the common thread – that they have shill bidders. From their FAQs:
Q. What is the difference between a Credit Bid and the Opening Bid?
A. Under the law, the beneficiary under the deed of trust may place a bid or bids (directly or through Auctioneer) during the auction called a “credit bid”. Such credit bids can be made up to the total amount due the beneficiary, including the Trustee’s fees and expenses. The “Opening Bid” is an initial credit bid to be placed at the auction, but does not represent the maximum credit bid that may be placed on behalf of the beneficiary.
While it is legal to do this at the court house steps, lenders typically are too busy/disorganized to attend the bidding, let alone manipulate it. But shill bidding is standard practice at all REDC auctions, so I would think it’ll be attempted at these auction.com trustee sales too. But will the pros go for it?
You know my policy – I don’t believe anything I hear, and only half of what I see. So I checked it out for myself. At the last REDC auction I attended about two years ago, I stood in the front corner and looked back at the audience – that way I would only hear the auctioneer’s bids, while looking for the actual bidders. It is a farce – most auction prices were run up without corresponding bidders in the audience making the bids.
But I do give them credit – they tell you that they are doing this in the fine print, if you read and understand it. But most amateurs are too excited over “getting a bank deal” to realize what is being done to them.
If you’d like to check it out for yourself, here is the link to the first attempt – the lenders threw them nine garbage properties for starters:
P.S. The auction company REDC purchased the website “auction.com” for $1,000,000 to use as their entry into regular residential sales. But like with their ballroom auctions, they put the 5% commission on the buyer. How is it working? According to the MLS, they have closed one sale this year, a 2br condo in Allied Gardens that they listed for $99,000 – it closed for $64,000.
We thought auction.com might be on to something, after spending $1.7 million just for their name.
They had some flashy advertising, and made it sound like auctioning houses on-line would become the norm. They are owned by REDC, the hotel-ballroom auction outfit, so who better to blaze the trail?
Apparently they are off to a slow start.
The last week of January was designated as the big kickoff for their San Diego on-line auctions, once they had completed two weekends of open houses. But since then, they’ve been peppering the bulk emails, announcing the “second chance”, which must mean the first chance wasn’t quite what they had hoped.
How did it go?
Here are their listing stats for San Diego County since September 1st:
Actives: 10
Pendings: 1
Cancelleds/Expireds: 22
Total: 33
I love the idea of house auctions, and think the on-line format has great potential. But the listings I saw were over-priced by at least 10%, so it’s no surprise that they didn’t sell any – their one pending is from last year.
Judging by the number of cancellations and expireds, the customers must not have thought much of the results – but they need to focus on their price as the culprit.
When faced with having to accept an offer that’s lower than expected, sellers like to think that there will always be other buyers – and there will be.
But will they pay the same price….or more, later?
Here’s a good example. First the builder said they were going to auction the three model homes in a sealed-bid process, but when the offers only came in around $1,100,000, they changed their mind, and relisted them with regular list prices. The two best are $1.3 and $1.35 million.
Their justification was that the highest sale so far at the end of the tract was $1,227,500, and they wanted to protect that buyer, plus they really weren’t that motivated because they still had the four remaining production homes to sell in the $800,000s.
So instead of selling the models today for around $1,100,000, they are going to take their chances in early spring – the classic two-in-the-bush strategy:
The “Balboa Lot” in Del Mar was purchased by Cinninati Bengal quarterback Carson Palmer, according to this article in the U-T.
The sales price was $4,400,000 ($4 million + the 10% vig), and it closed on November 4th.
The auctioneer was masterful in how he took the bid from $3,000,000 (which would have been a no sale, because the city needed $3.25 to retire a debt), to $4,000,000 in a heartbeat when there were no other bidders. Here’s another look – the auction starts at the 3:00-mark:
Selling homes using the auction format has great promise, mostly because when they are done right, they eliminate a lot of the fluff and uncertainty. Buyers just want to buy a good home for a decent price, and the wrong-pricing-and-wait-for-a-miracle listing program has run its course.
Auction.com is now listing homes for sale in San Diego County, and advertising their plan on television. They are trying to appeal to everyone by combining the old I-Pay-None format with Zetabid’s online auction.
A seller pays $25 to list their home, and is scheduled to be auctioned on-line about a month later – with a secret reserve price, under which the seller is not obligated to sell. In the meantime, they are entered onto the MLS in case any buyer wants to snap it up before the auction. (Like most FSBOs, the MLS prices look like they are full retail.) The on-line bidding is open for five days, and the opening bids are not published currently.
Details from their fine print:
Auction.com only charges the seller a 1% fee, but that’s just for advertising. If you want a “listing helper” to assist with open houses, inspections, and evaluations, then you pay another 1%.
They state clearly that “broker is not responsible for, nor assume any obligation for open houses, lockboxes, deposits, or advising seller on the merits of offers to purchase.”
The buyer pays an additional 5% commission, or ‘premium’. The buyer’s agents are paid 4%, and apparently Auction.com keeps the other 1%. So they’ll receive 2% for listing input, and it’s 3% total to them if you want a helper – or 7% total commission paid.
I would guess that most sellers would rather wait for the on-line auction, rather than sell it for an attractive price beforehand – the allure of a potential bidding war is too good to pass up. Buyers will like the convenience of an on-line auction, but won’t be giddy about tacking on a 5% premium unless their bid is already under-market. In the end, the seller’s reserve price is likely to kill most if not all “deals”.
REDC, the regular auction company and parent of auction.com, has luck selling bank-owned homes in a hotel ballroom because those sellers are willing to sell for whatever the market will bear. Normal individual sellers aren’t going to “give them away” which is what it would take for buyers to feel comfortable with this format.
If they could kill one of the two hurdles – either dump the reserve price or make the sellers pay the full commission, then we might have something to talk about.
Hopefully there will be more acceptance of using the auction format to sell houses.
All that is needed are sellers who will accept whatever price the market will bear. Will the sellers trust that an auction would produce the same results (or better) than a traditional listing?
Another benefit of an auction is that the sellers know what day the house is going to sell, and can make plans accordingly. It’s usually inconvenient to sell your house, at least you would have some time parameters. Then take two weekends off so we can conduct open house leading up to the auction, and on a Sunday afternoon at 1:00pm we’ll gather everyone around and see what the market will bear.
If there were sellers willing to try, I’d like to help. If we can follow a few auctions that work so people might feel more comfortable with the process, maybe we could start something here:
The auction format would reduce the chances of shenanigans taking place. In today’s market, with short sales growing and manipulating agents causing more suspicion, a pure shot at buying a house would be appreciated.
I think the auction format could catch on, and with some luck become a primary resource for buyers and sellers. It would take the right ingredients to build the trust necessary:
No reserve price – highest bidder buys it. (or a low reserve to give bidders guidance)
Inspection report made available to all buyers.
Property is vacant and open 9-5 for inspection the previous two weekends, and on lockbox.
Open bidding where you see the competition eye-to-eye, or a sealed-bid process.
Seller pays 3% commission to buyer-agents, not tacked onto price as a ‘buyer’s premium’.
Preferred financing available with seller buydowns.
Have the whole package bundled up and broadcast over the internet on Jim TV!
Include a full photo and video display on the first day of the listing, and have the entire production coordinated by an established long-time realtor with good looks and dazzling personality, and it could take off just for the entertainment value alone. But it’s the purity that would be attractive to the those watching, and make them more comfortable with participating the following week.
You see more of them around, here’s a couple of recent examples:
The auction of a custom-built mansion along Malibu’s “Billionaire’s Beach,” so named for its wealthy homeowners, hit a snag Sunday when it failed to generate an acceptable bid.
