Michael Attends Condo Auction in DC

On Tuesday afternoon I attended an auction for 3 condo units in NE DC’s Deanwood neighborhood. I am familiar with the Deanwood neighborhood because I already own some investment property there. I think it’s a smart investment because of the convenience to Capitol Hill and the rest of the city, with easy access both by road and by the Deanwood Metro Station. There is talk of a trolley or light rail eventually connecting Deanwood both to Benning Road as well as the retail and historic areas of Anacostia. The city’s Office of Planning has been working this year to create a comprehensive plan for Deanwood. In late September they had their latest public meeting about opportunities in Deanwood and other parts of Ward 7. Click here to see the encouraging development report.

The auction on Tuesday was conducted by Fox Residential Auctions LLC and took place on the steps of the condo building. Fox Residential Auctions LLC has a strategic partnership with Long and Foster in the Baltimore Region. They conduct residential and commercial property auctions primarily in Maryland, but also in the District and Pennsylvania. You can see both past and future auctions and learn about their auction process at their website at: http://www.fox-residential.com/.

Some people believe that property auctions are just for foreclosed properties or tax sale properties when in fact anyone can choose to sell their property at auction. In the case of these 3 condo units I was told that the owner had decided he was tired of waiting on buyers in this market and wanted to finish selling off the final units in the project before the end of the year.

The condo buildings where this auction took place were at 4200 and 4202 Grant Street, NE. These condo buildings have a total of 12 units, 6 units in each building. They have been sold over the last two years for between $154,000 and $170,000. They are each 1 bedroom units around 500 square feet completely renovated with central heat and air, granite counters, Berber carpet and washer/dryers in the unit.

Property auctions come in many different shapes and sizes, for instance an auction can have a “reserve” number or they can be “absolute” auctions. When an auction has a reserve number the seller has established a minimum dollar amount they will take for the property. If that amount is not reached during the auction the auctioneer does not have to sell the property to the highest bidder. For example, if a seller asks an auctioneer to sell a house valued at $500,000 he or she may set a “reserve” of $400,000 in order to insure a certain profit margin at the sale. If the highest bidder only reaches $380K the seller can tell the auctioneer to refuse the sale.

In an absolute auction, there is no reserve meaning the property will absolutely be sold to the highest bidder, no matter how high or low the winning bid may be. This is a risk for the seller and a huge advantage for the buyer. At the auction on Tuesday 2 of the condo units were being sold with a reserve number, but one of them was being sold absolute. I am guessing that the auctioneer encouraged the seller to sell one unit in absolute as a come-on to get people to the auction, assuming they would bid that unit up to a similar price as the reserve units.

I was surprised that they decided to start the bidding on the absolute unit. After everyone who was interested in bidding had proven they had $5000 in cash or certified funds they were issued a bid card and asked to gather in front of the building for the bidding. If you haven’t been to an auction like this before, I would highly recommend attending one. Even if you aren’t interested in buying the property the people watching is terrific. There must have been nearly 50 people hanging around by the time the auction started. Of those gathered there were less than 10 folks with bid cars participating in the auction. There were neighbors, police, investors, friends and even a homeless man who tried to bid at one point by raising his brown bag 40 oz beer as if it were a bid card!

I was there to try and purchase the unit being sold in absolute for between $50K and $80K. My investment partners and I decided that was a good range that would allow us to make a slight profit if we rented the unit out and probably wait a few years to build equity and for the market to perk up a bit before re-selling for a profit. When you go to an auction like this you need to have a concrete number that you will not go above where you will stop bidding. Each investor has a different number they are comfortable bidding up to based on their own investment strategy. If you are ever interested in pursuing this type of investment please let me know (Michael@RealAstute.com) and I would be happy to help you run comps and help you determine the right number for you and your investment.

The auctioneer started the bidding for the absolute unit at $175K. You could hear the crickets chirp. I actually chuckled when he said that number. Finally someone in the crowd hollered $10,000. The auctioneer laughed, but he had to proceed with that number for the bidding since this was an absolute auction. Needless to say the bidding ran up quickly to $50K, then me and 3 other bidders quickly ran the bids up to $75K at which point I was fairly certain by the lack of bidding that I would be the winning bidder and would be getting a great deal on one of these condos. Sadly, I was mistaken!

Just as the auctioneer prepared to award me the condo for $75K a gentleman just a few feet away took the bid to $77,500. I went to $80K. Then my competition went to $82,500 and like a smart investor I turned to my competition and congratulated him and started walking to my car parked along the side of the building. Even though you can get wrapped up in the bidding you must remember that you have a cap and you don’t want to go over that cap. I knew that my fellow investors trusted my judgment and would be pleased that I didn’t get carried away and pass our cap.

Once we passed my cap I was disappointed but I know there will be many more auctions and opportunities and this one was simply not meant to be. The auctioneer was quite funny and actually called out to me to stay and keep bidding by saying, “You know it’s still a steal at $100K, don’t leave yet.” But it was too late; I pulled off and headed back to the office, with a quick stop at McDonalds for a Big Mac!

If you think you or someone you know, or even a group of investors you want to put together might be interested in learning more about this type of auction I am happy to share my knowledge. My small investment team has successfully purchased property through the annual DC tax sale as well and I am happy to advise my clients on how to navigate that process. Further, there are more and more auctions every week with foreclosed properties being sold at discounted prices. Next Tuesday I am planning to attend one of these foreclosure auctions and I will share what I learn on upcoming blog posts.

Michael Dillon
Michael@RealAstute.com