While the auction gavel has made its way onto the real estate scene in the New York area in recent weeks, not everyone is sold on the idea of putting properties up for bid.
Those who run auctions have, of course, very publicly touted them as a way to get property moving in a market where transactions seem to be stuck in quicksand.
But the question remains: Do auctions really work for high-end properties, or other properties that are not in distress? Or do they simply set an artificial floor for prices and depress surrounding property values?
For some, the very idea of a real estate auction for a Manhattan property with a desirable address is like swallowing a real estate poison pill.
Michael Signet, director of sales at Bond New York, couldn’t have put his view more bluntly: “An auction spells desperation in capital letters. It marks the property in a way that sends the wrong message.”
Hall Wilkie, the president of Brown Harris Stevens, is no stranger to the business of bidding. In the 1980s, Wilkie was an auctioneer for Sotheby’s in Los Angeles, where he sold decorative arts including fine furniture, rugs and porcelain. But when it comes to using auctions to sell Manhattan real estate, he is not a believer.
“Property auctions have very negative connotations in this country,” Wilkie said.
“The risk is so great,” he added. “If it goes to auction and fails, the property becomes tainted.”
Wilkie noted that because 70 percent of those who own in New York live in co-ops, auctioning off property here is not as simple as it is elsewhere. “How can you guarantee the highest bidder will be approved by the building’s board?” he asked.
Anecdotally, there is evidence of brokers bypassing planned auctions if a decent offer is made. Last month, the New York Observer reported that the planned auction of a luxury townhouse at 11 East 74th Street — which had reportedly seen its asking price drop from $35 million to just over $20 million in the three years it had been on the market — was cancelled after the seller accepted an offer.
Prudential Douglas Elliman broker Lisa Simonsen, who represents the seller, said she’d never used an auction before, and was non-committal about whether she’d do it again. “It depends on the property,” she said.
However, Simonsen’s Elliman colleague Enzo Morabito, who works in the Hamptons, thinks auctions may be the wave of the future, at least in his market. In March, Morabito held an Internet auction of nine homes in the Hamptons through his newly created Web site, HamptonsAuctions.com.
“There was nothing going on out here,” said Morabito, who is also planning auctions (or, as some prefer to call them, “bidding sales”) in Greenwich, Conn., Newport, R.I., and Miami.
“When things aren’t going well, an auction is simply another tool,” Morabito said.
He added that “several hundred” people came to the open houses he held for the properties over two weekends. “We created a sense of urgency and immediacy. All of a sudden, there were people from the city back in the Hamptons, looking at property.”
When all was said and done, Morabito said he received 56 bids. He said the auction was a “phenomenal” success, partly because of all the leads he generated through the open houses.
Still, only two of the nine properties are in contract. Two more are in negotiations, with no papers signed as of press time.
Some who work in the Hamptons market were unimpressed with the auction and expressed concern that the steep discounts could further depress the already struggling East End.
“I think any time there are auctions or foreclosures in an area it isn’t good for any neighborhood property,” said Judi Desiderio, CEO of Town & Country Real Estate.
Still, Diane Saatchi, senior vice president at Corcoran’s East Hampton office, said it’s a natural time for auctions to be launched.
“In the market we have now, people are looking to distinguish their property from the masses,” she said. “An auction is one way to do that.
“It appeals to a buyer’s sense of a deal, and the seller’s sense that the bids will go up and up,” Saatchi said.
While many New York City brokers were reluctant to make guesses about whether an auction would affect prices throughout an area, Barak Dunayer, president of Barak Realty, who sees both the pros and the cons to using auctions, said it could mean lower prices for nearby properties. Signet noted that auctions “depress the market.”
“Much of the pricing we do depends on the previous sale price,” he said.
Thus, if a condo were to be sold at auction, when its buyer wants to sell again, the asking price might be significantly lower than what the market would otherwise dictate, Signet explained. However, he added that he can understand why an auction might be employed as a last resort: “If you’re a developer with a $100 million construction loan and it’s been two years and you’ve only sold 20 percent but the bank won’t let those people close until you’ve sold 70 percent, what else are you supposed to do? If the customary methods don’t work, you’re going to look for something else.”
Dunayer said auctions are often associated with foreclosed and distressed properties, “so I think it might cheapen the property a little.”
Still, Dunayer has used auction-like processes to market two properties in the last two years. Indeed, in March, The Real Deal reported on sealed-bid auctions, including some that Dunayer ran. Last month he cited a one-bedroom at 245 East 24th Street, which had originally listed for $549,000 and sat on the market for four months in late 2006.
“We couldn’t move the property the conventional way, so we reduced the price 35 percent, did an ad and said we were seeking the highest bidder,” said Dunayer. “All of a sudden, we went from no interest to 120 potential buyers coming through in two weeks.” The property ended up selling for $509,000.
Dunayer attempted the same technique — unsuccessfully — with a one-bedroom in Washington Heights last December. The highest bid came in at $275,000, but the seller, who had listed the property at $300,000, decided that wasn’t enough and took the property off the market.
Meanwhile, companies that specialize in auctions, like Accelerated Marketing Partners and Sheldon Good & Co., are in discussions with New York City developers.
Jeff Hubbard, executive director of national auction house Sheldon Good & Co., said that for some sellers, including those whose condos he auctioned off in Weehawken, N.J., in April, an auction is a “first-choice marketing vehicle.”
“Every message in the marketplace is telling buyers to wait,” said Hubbard. “For a seller, an auction creates a date-certain of sale.”
Hubbard said that nationally, nearly 50 percent of the homes bought at auction close within 10 days.
Upfront costs for the seller “are specific to each deal,” he said, but usually include the cost of due diligence as well as lining up offering plans and contracts.
Meanwhile, last month, Vlad Sapozhnikov and Albert Feinstein held their first auction through their new company, Bid on the City, with largely positive results.
The five properties that went up for auction at their first event included a one-bedroom, one-and-a-half-bath unit at 325 Fifth Avenue that had a starting bid of $1.13 million and sold for $1.305 million; a condo at 555 West 23rd Street with a minimum bid of $499,000 that sold for $509,000; a studio in the same building that started at $299,000 and sold for $468,000; a one-bedroom at 212 East 47th Street that sold for $564,000, up from the starting bid of $499,000; and a one-bedroom condo at 150 West 51st Street with a minimum bid of $399,000 that failed to sell.
“The idea behind this is to bring everybody interested to bid on the property at the same time,” Sapozhnikov told The Real Deal in a Webcast last month. “We feel that this is the only way the property will get a true market value.”
Despite the current popularity of auctions, Signet said he’s glad he hasn’t had any sellers in straits dire enough to warrant an auction: “I might do it, but it’s not something that, reputation-wise, I’d like us to be known for.”