The auction: it works for art, automobiles, jewelry, memorabilia and foreclosures, but it remains to be seen if it’s an effective strategy to sell units in New York City residential developments.
Real estate auctions — generally used in “closeout” deals to off-load remaining units in a building — have long been used as a sales strategy in other parts of the country and around the world, but have been slow to take root in New York, though the practice was used here in a limited context in down markets, including during the late 1980s.
“People in the Midwest and down South have been aware of auctions for moving properties for hundreds of years. In New York City, people haven’t [generally] gone to the auction block to buy real estate,” said Robert Baker, the owner of One, Two, Three Realty Auctions based in Bellport, N.Y., which has auctioned property in Manhattan and Brooklyn.
But with the influx of new developments on the horizon and greater consumer fluency in online auctions following the rise of eBay, the tri-state area could be ripe for real estate sales by auction.
“Realtors have run out of methods and approaches to basically move their merchandise,” Baker said.
At the end of last month, Jon Gollinger, chief executive officer of Accelerated Marketing Partners, conducted what was billed as a kick-off auction for Velocity, a new condominium in Hoboken.
The auction “create[s] an event or a compelling reason to come see the property — a once-in-a-lifetime opportunity,” Gollinger said. “When it works well, it’s scary good, and it’s show business.”
He expects the marketing strategy to catch on in the tri-state area, in secondary and tertiary markets.
The developer of Velocity, Remi Companies, had signed contracts on 100 units before running into year-long construction delays. Ninety of the buyers bailed. Looking to relaunch sales, the company brought in Accelerated Marketing.
“Why do I have to wait months to sell 40 units when I can do it in a day?” Erik Kaiser, chief executive officer of Remi, said before the auction. “We can accept less, and the buyer gets the benefit of not having to pay for our carrying costs going forward.”
But buyers had a mixed response to the auction, and smaller units proved more popular with bidders.
Forty of 128 units were expected to be auctioned with published starting prices of $295,000 for a one-bedroom. After all of the nine one-bedrooms sold for approximately $411,000 each, buyers became “skittish about bidding” on two-bedrooms, Kaiser said in an e-mail. After a couple of two-bedroom sales for “cheap” prices, the developer decided to cancel the rest of the auction and do some direct deals.
“We learned that past a certain price — say $450,000 — buyers do not like the auction format and prefer the one-on-one sale. Once those buyers were in private, deals were easily made,” he said.
For the developer, an auction accelerates sales, reduces carrying costs, gives the building exposure and creates a sense of urgency.
“The auction gives a good reading on what the pricing should be,” said Craig King, president of J.P. King Auction Company, based in Gadsden, Ala., which has sold units in Brooklyn.
The gamble, of course, is that a developer can lose money on the sale. But the developer is generally protected by a reserve, or minimum price, which most auctioneers set as pre-qualifying criteria. Buyers are generally pre-qualified before the auction if they require financing.
For buyers, an auction provides a set date when the property will sell and offers the chance of getting a sweet deal with a transparent bidding process. Market conditions are such that buyers are now more likely to embrace the practice.
“As interest rates go up, auctions become that much more compelling,” said Joshua Olshin, the managing director of the Manhattan-based northeast office of Express Auction, headquartered in Baltimore, Md.
The Velocity sale is not the only recent real estate auction in the tri-state region, although it may be the sole one used to start sales.
A month before the Velocity sale, Sheldon Good & Company auctioned 21 of 90 units in a closeout sale at the new Ocean Grande development in Rockaway Park in Queens. The units grossed $10.5 million in sales, said Steven Good, chief executive officer of Sheldon Good & Company. Buyers of the oceanfront units paid discounted prices ranging from 12 to 25 percent off the pre-auction asking prices, he said.
Back in the 1980s, people bought real estate at auction during the market downturn, but when the market picked up, real estate marketers reverted back to traditional methods.
A number of real estate marketing specialists said the current climate does not necessitate the use of an auction to commence sales.
“We are in a healthy market,” Clifford Finn, managing director of new development marketing at Citi Habitats, said in an e-mail. “The majority of new product is selling very well, at record-high per square foot prices.”
New and existing condo unit sales in Manhattan have been brisk.
There were 1,703 sales in the first quarter of this year, the greatest number recorded by appraisal firm Miller Samuel since at least 1989.
The average sales price at the beginning of the year was $1.5 million, and units were on the market for an average of 124 days.
Although New York’s market is not as slow as the rest of the country’s, residential real estate is the fastest-growing sector in the auction industry in the country, with $16 billion in revenue last year, according to the National Auctioneers Association.
Kick-off auction advocates in New York City may still be ahead of the curve.
“It makes people think of ‘foreclosure’ or other distressed situations where the auction process would commonly be applied,” Citi Habitats’ Finn said.
Max Dobens, an associate broker and vice president with the Jacky Teplitzky team at Prudential Douglas Elliman, is not a proponent of the auction method.
“It’s simply one moment in time,” he said. If people cannot make it to the auction, they are out of luck for the discounted units. “I’m not convinced that’s the highest and best road,” he said.