The willingness of distressed developers to resort to real estate auctions puzzles me.
I also wonder why a consuming public puts up with them.
But I don’t doubt why the companies that run auctions love them: money, of course.
Prompting this screed are three things: 1. A blogger for the New York Times called to interview me about auctions; 2. A couple of auctions have been scheduled of condos in East Harlem; and 3. I noticed an advertisement just yesterday for 10 properties in the outer boroughs.
The pitch that the auctioneers make to developers is that they can benefit from instant establishment of the market value of their properties.
If the developers decide against selling out the building or don’t accept some of the bids, they’ll know exactly what to charge for the remaining units. So goes the pitch.
All they have to do is dangle before buyers a few apartments in their building as available “absolute,” the auction companies contend; that strategy guarantees the seller’s acceptance of the winning bids. Other units will be offered at the same auction with ridiculously low minimum bids, but the developer retains the right to reject the eventual winners.
In either case, buyers can be counted on turn out in droves in the hope of snaring a bargain. They are doubtless the same buyers who shun bidding wars in horror.
Yet an auction is nothing more than a bidding war.
True, a few buyers — even many at times, depending on circumstance — buy property at a good price. But (more…)