Condo Auctions: Where the Deals Are?
November 14, 2008
by Mark Wellborn
This weekend, DC-area residents will have the opportunity to get a $300,000 condo for just below half price.
On Sunday, at the Hilton in Rockville, the remaining condos at The Ashmore in Germantown will be auctioned off. The 400-unit development was built in 2006, and sits about 25 miles northwest of downtown DC. The starting bids for the auctioned units will be $140,000, a dramatic discount from their list prices. The prices they actually sell for, though, is of course based on how high the bidding goes.
The condos have been on the market for months and the developer, Fairfield Residential, has decided to cut its losses and auction off the remaining forty-five units in the development, a sign that builders are willing to resort to extreme measures to get rid of their existing inventory. (The Mercer at Reston Square is auctioning off its remaining inventory on November 23rd.)
The auction will operate rather simply. Those who wish to bid on properties will register, bid on the condo that they want and, if they are the winning bid, close on the condo within a month. The units have been open to the public for the last two weeks and will be open tomorrow, November 15th, from 11 am to 3 pm.
Potential bidders should not be fooled by the $140,000 price tags, though. The developer will only guarantee that 15 units will be sold subject to the minimum bid of $140,000 which means that just one-third of the units have a guaranteed minimum price of $140,000. A “reserve” has been placed on the rest of the units which means that the developer does not have to sell them below a certain price. In other words, even if a property starts out at $140,000, it can have a reserve price of $200,000 which means Fairfield will not sell it below that price. This information is available on the auction’s website.
“Generally what auctions do to lure people in is that they have some units that will be sold with ‘no reserve’,” Michael Dillon of Long and Foster told UrbanTurf. “‘No reserve’ means that a unit can sell for the minimum bid. So, even if a property is valued at $300,000, it will sell if the final bid is $150,000.”
One of the other traps that people fall into at auctions is a combination of getting caught up in their emotions and always feeling like they are getting a good deal.
“Getting the deal means more than just showing up,” Dillon said. “Some people get into an auction situation and they lose their self control. They just want to win, so they keep bidding up. You can’t do that and expect to get a deal.”
To avoid this type of situation, the bidder should make sure that they have their finances in order and have a dollar amount in mind that they will not exceed. While the buyer has a month after the auction to close on the property, he or she does not want to get into a position where they cannot afford their winning bid.
“You have to pay your own closing costs at auctions, as there is no closing assistance,” said Dewita Soeharjono, an agent with Weichert Realtors and author of the Urban Trekker blog. “You should figure this out before you bid and make sure you can you afford it.”
Soeharjono also pointed out that most auctions are just a tool to sell a development’s remaining inventory quickly (the case at this weekend’s auction), so there is no negotiation period between buyer and seller.
“In a typical real estate transaction you negotiate until a price is agreed upon,” she told UrbanTurf. “At an auction, that is not the case.”
While there is no negotiation between the buyer and seller, at many auctions, a lot of negotiating goes on among the bidders.
“It sounds strange but at some auctions, there is almost a compassionate negotiation that goes on,” Dillon said. “There was a small auction for a building in Friendship Heights and a single mother was there indicating that she really needed to get a certain unit at a low price. The other bidders all laid off and let her have it.”
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