Historically, real estate auctions left a negative stigma. A mark permanently emblazoned on the lapel of a project for all to see.
The public reaction: “Oh look, they’re jumping ship, they must have screwed up, big time.” It looked bad, because usually it WAS bad.
Those days are long over. In our current market, auctions have new meaning. It’s not always a last ditch effort – it can be an aggressive first strike. An auction doesn’t always mean trouble.
An auction means you have a plan. You’re trying to establish value and kick-start and/or monetize your project. It can take place at any time during the life of a project and it doesn’t mean you’re throwing in the towel.
The Grand Opening…Auction? A grand opening auction establishes momentum for projects that could otherwise have been D.O.A. And when sales centers come up against ominous silence, mid-project auctions can work wonders.
Case in point, Vetro: A Chicago South Loop/Printers Row condo development. The market was falling and nobody knew how far. Buyer paralysis set in. To revive sales, they aggressively established market values with a one-day auction.
They sold $11 Million worth of real estate in one hour. With 248 people bidding on homes, there was no doubt where the bottom was, and plenty of people wanted in.
The new prices became the benchmark for future sales. It removed unknowns and restored buyers’ confidence that they were paying fair market value or better.
After that they sold ten homes a month at Vetro. After six months they were SOLD OUT. In this case, the auction wasn’t a last ditch effort. It was a first ditch effort. Sure, they lost some revenue when they dropped prices, but they made it up in volume and a quicker sell-out.
Auctions are powerful stuff. Dropping 35-40% from last asking price turns buyer apathy into urgency within the space of five minutes. Applied correctly, auctions defibrillate your project and give you a new lease on life in the face of any number of challenges.
For instance, if a project is not meeting pre-sale requirements of 31% to qualify for FHA financing, an auction can quickly bring the project to pre-sale level.
Here’s another: if you’re facing the choice of retiring debt or closing up shop, an auction can unload a year of inventory in one day. The velocity makes up for the price adjustments and you live another day. It’s smart business.
Some people will always be reluctant to go to auction, even when it’s the best move. Denial, wishful thinking and unrealistic expectations are facts of life in residential real estate, even at the top levels.
That’s why it’s important to choose a partner willing and able to help you execute advanced moves like auctions, with the kind of timing and effectiveness that will help you overcome today’s unique challenges. (You know where to find us.)