Home Auction - An Overview of My Experience
Today I made it back in one piece from my adventure with my wife, in-laws, 4 year old 1 year old sons and headed over to the auction taking place down the street that I blogged about earlier.
I didn't think I'd have too much luck persuading the owner or auctioneer to give me access to their WiFi connection so I could live blog the action so I had to make due typing my observations on my crackberry. Below is an account of how it all shook out.
At 5PM the home at 228 Palm Island NW was open to for inspection by all prospective bidders. The inspection period would last from 5PM until 7PM and then the fun would start.
I showed up at about 6:45 or so and took a quick walk through of the home. The house boasted 4 beds, 4.5 baths, dining, living and family rooms, 2 car garage, large in-ground swimming pool and a deep water dock. You can see a flyer for the property here.
Right around 7 I went outside and there were about 50 or so people there. The mix of people was eclectic, a few young first-time home buyers looking for a deal, some investors, real estate agents, the family of the homeowners (or soon to be previous owners if all works out according to plan). It was interesting to see that there were several real estate agents at the auction with their buyer client(s). One agent had three of her buyers there which I found interesting.
There were 25 or so chairs set up alongside the pool with only about 8 or 9 people sitting around. Other people were siting on lounge chairs around the pool watching the sunset while others were scattered around the covered patio. Many people there seemed to know each other from other auctions or just from the community (the feeling of community in our neighborhood is on of the greatest things about living here even if only part-time).
Slowly as 7PM start nears the folding chairs start to fill up. The auctioneer strides up to the podium, checks the microphone and his mini-tape recorder. Everything seems set so all can hear and nobody will be able to dispute. Also joining the auction mayhem, though peripherally, are the neighbors who are sitting in their screened in porches sipping evening cocktails and eyeing up their potential new neighbor(s). The young couple who walked in with me take some seats in the last row and seem quite nervous of what they are about to embark on.
I overhear a lot of people handicapping how they expect the auction to go. I hear someone say they believe that the lot is worth 600. Handicapper #1 says that he is going to open the bidding at 750. The auctioneer comes out and give everyone a 5 minute warning.
The auction begins with the auctioneer coming out and launching right into "25, 50, 75, 100 - Lets Have An Auction!" Nobody in the audience raised their card and we are all now lectured by the auctioneer that we need to be "in it to win it". The rules of the auction are that the winning bidder needs to have a $25,000 deposited by noon the following day in the auction company's escrow account. The terms and conditions of the sale are as follows: Highest bid wins but the final offer is contingent on being acceptable to the seller. There is a 10% buyers premium placed on the winning bid which is payable to the auction company. Basically if the winning bid is $100,000, the buyer will actually pay $110,000 ($100,000 to the seller and $10,000 to the auction company). Closing will be on July 16 2007. 2006 taxes on the property were $19,900 and wind/flood insurance is $7,000 per year. The auctioneer the does a 5 minute or so sales pitch on all of the amenities the home has. He asks the audience if anyone has any questions. Only one is asked by a bidder and it has to do with the whether the 10% buyers premium is negotiable. The answer is "No".
And we are off - Bidding opens with a $750,000 bid offered by Handicapper #1. Goes to 825 then to 875, to 900, 925, 950 and it gets stuck here for a while. The auctioneer stops the bidding and starts to tell a story about how the crowd should be more excited about the auction since it is such a great house and the current bid price is so low. When he starts again the bidding up again he messes up and starts at 925 which his partner quickly reminds him of and he gets back on the correct price. The high bid moves to 975 and hangs there for a while at which point the auctioneer starts addressing Handicapper #1 who is standing next to me. Apparently Handicapper #1 was at another auction run by this company where the winning bid was $875,000 for a house which was a tear-down. Handicapper #1 seems less than thrilled about being singled out by the auctioneer and also informs him that the winning bid was 815 not 875. The auctioneer begins to chastise the crowd for "sleeping" and not getting more excited about this great opportunity.
The high bid next goes to an even $ million and the auctioneer is trying to get a bid of $1.25 million - no takers. He drops it to 1.1 then to 1.05. He starts chanting the mantra "125 gets it, 125 gets it 125 gets it".
The high bid jumps to 1.1 and he tries to get 1.175 - the bidding is now bouncing back and forth between two buyers. One is an 50+ year old gentlemen in the back that seems almost disinterested in the process which I find odd considering the amount of money he is pledging to spend, and a guy, mid 30's sitting in the front row and talking on a cell phone. He is obviously taking bidding orders from a mystery person. The bidding now jumps to $1.2 million and those in the crowd seem to have reached the point where they are no longer interested in what is going on. People start to have conversations among themselves and others start to leave.
The auctioneer sees that $1.2 is most likely the highest that the bids are going to get so he informs the crowd that he is halting the auction while he goes and speaks to the owner. A few minutes later he returns and begins to discuss the wonderful features of the home. He then informs the crowd that the least that the owner will accept is $1.25 million. There are no takers. The auctioneer not wanting to lose his sale, now informs us that the previously non-negotiable 10% buyers premium is now negotiable if someone will meet the $1.25 million mark. Again there are no takers and the auction is over. The home is not sold, no commissions or premiums are made and there are a lot of chairs to be put away.
Back when the auctioneer left to go discuss the numbers with the owner, I began to talk to a real estate agent who was standing next to me. I asked him what he thought the property was worth and he told me that he had an appraisal done on the home it came back at $1.1 million. If the bidder who had bid $1.2 million had his offer accepted, he would have (with the buyer premium included) over paid for the property by $220,000.
A couple of observations from this experience. First, I have to commend the seller for doing something different and making his home stand out from the rest that are for sale in the neighborhood. His different approach to selling his home generated a buzz and brought people in to his house. Granted not everyone there was a buyer, but they were there and they will certainly tell others of what they experienced/saw and a conversation about this home was created. In this market you need to make yourself stand out if you hope to have a chance of selling your property on your own terms.
At the same time I commend this buyer, I also have to point out that in my opinion, greed cost him, and cost him big. His house was appraised at $1.1 million and he had an offer of $1.2 million. He nixed the deal in an attempt to gain another $50,000. Now don't get me wrong, 50,000 is nothing to sneeze at, however when compared to the extra $100,000 he already had above the appraised price, he was foolish to let the deal go. Not only has he lost the sale, but now buyers using agents that were at the auction, or in their same brokerages, know what he is expecting to get for the house.
Taking a different approach was a great move that could have been successful if not for the all powerful emotion of greed.
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