Auction your house?

A failed Bridgeport condominium project (there’s a redundant term) is going on the auction block August 30th. This might work in Bridgeport, but would an auction work in Greenwich? The only one I’m aware of, Mr. Martin Cheslock’s attempt to unload 309 Taconic Raod, was a bust last year. Of course, with 31 acres, 26,000 sq. feet of house an and annual upkeep cost, according to Mrs. Cheslock, of $200,000 per year, this rarefied property might not be the best example of an auction’s efficacy. My guess is that bidders at a Greenwich auction will attend with expectations of such low prices that the seller will refuse to go through with the deal – no one is going to sell the property and still owe money on his mortgage, for instance. But if anything interesting crops up in this regard, I’ll let you know.

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5 responses to “Auction your house?

  1. Paco

    Excuse the essay, but I’ll share my house auction experience from late 2006 in case anyone is interested.

    Few people – including (especially?) realtors – understand how auctions can work outside of distress situations. My experience taught me that for some properties a well managed auction process introduces a discipline and urgency to the process that eliminates the kabuki theater principals and agents often stylistically perform for months.

    I was under no compulsion, financial or otherwise, to sell the house but wished to do so and was reasonable as to what an acceptable price would be in one of the first house markets to freeze up and turn down. It was a median priced property on a good lot on one of the best streets in the city, but conventional realtors assured me “nothing is selling” and the process would likely take many months unless I wanted to let someone steal it, yadayadayada.

    The key, which Mt. Fountain fully understands, is that the seller and auction company principal must agree to a “reserve price’ that is never known to anyone but those two. The auctioneer won’t take a listing for a price he doesn’t believe is obtainable in the current market since they waste their time and make nothing if nobody bids up to at least the secret reserve price. The seller is under some pressure because if the house fails to reach the reserve price he is on the hook for an advertising charge ($3k in my instance).

    The process took 60 days: 30 days to market the house (widely and effectively promoted on the internet with auction company employees – all licensed realtors – showing it day or night to prospective buyers and their inspectors, etc. and informing me by email of how many people saw it each week and what they said); fifteen minutes to conduct the auction for the six or so bidders who came with cashier checks; 30 days to close the deal.

    The terms of sale are “as is, where is” and buyers inspect the house and perform whatever due diligence they require before the auction. The winning bidder hands over a cashier check for a fixed amount that, in my case, equaled about $7% of my reserve price. They sign a contract obligating them to close the sale within 30 days or forfeit their deposit. After that no contingencies or changes are allowed for either party.

    They auction company is under pressure to shepherd the deal to closing since if this sale doesn’t close the seller keeps the deposit, minus the advertising fee and they don’t get to watch the house sit on the market for months until another buyer wanders by like conventional realtors are able to do. A snag came up a week before my closing and the auctioneer suggested I compromise with the seller. I declined to do so and said I’d use the forfeited deposit to fix up the place and rent it indefinitely. Somehow that little piece of information focused everyone’s attention on arranging financing in time for the mandatory closing.

    Out of maybe two dozen realtors I’ve dealt with in several states the Virginia auction company was the best, overall, at every stage of the transaction apart from one I’ve used multiple times in Seattle.

    Interestingly the auctioneer told me that about 50% of the time a prospective buyer makes a pre-auction offer acceptable to the seller and the auction is cancelled. The knowledge that the property will likely sell at auction apparently motivates serious qualified buyers to make their move. Auctioneers call the process “accelerated marketing”. My house sold to someone who several months previously made an inadequate offer directly to me that I turned down. He showed up at the auction and other bidders drove him to (barely) pay my reserve. I was pleased with the result.

    FYI, I have no connection, financial or otherwise, with any auction company or real estate firm.

  2. Old School Grump

    Paco, that was a really informative and interesting read. Thank you for taking the time to take us through your experience and insights.

  3. Midwest

    Paco thank you also for that very helpful information. 2 questions please. I have a $1.5MM golf course property in the upper midwest that is more marketable in the summer. 1) Do you think it is too late to try this approach this year since 30 days of marketing would put us almost into September or should I wait until the spring? 2) Do you know the names of any reputable auction firms in the midwest? Thank you.

  4. anonymous

    Thanks for an informative summary, Paco

  5. Paco

    Midwest

    The house I auctioned was in Fredericksburg, VA (my late mother’s house). I used Nicholls Auction company (nichollsauction.com) and dealt with John Nicholls. They deal with properties in Virginia and adjoining states. I needed an auctioneer for a client’s property in Arizona and Mr. Nichols referred me to a highly competent firm. Perhaps if you email John Nicholls he can refer you someone in your area or someone who specialized in golf properties. Tell John the person he sold the Braehead Drive house in 2006 referred you. I receive no consideration, financial or otherwise, from the Nicholls firm.

    I started my auction process in August 2006, the auction occurred about September 20th and the sale closed a month later. I, too, wanted to do the deal before winter.

    Apart from distress situations auctions my experience and observation is that real estate auctions are most suitable for a property distinguished in some manner – location, etc. – that is not competing with several similar properties.

    Hope this is helpful.