Public auctions of houses and other properties have become more prominent in the sluggish real estate market, mainly for one good reason: They let the seller determine when the property will be sold.
This month, a former Catholic villa on the beach in Ventnor sold at auction for $4.1 million, while a bankruptcy auction of a 110-acre tract in Barnegat Township drew multiple bids that are under consideration. Three more properties in the region will go under the hammer in early October.
In today’s regular housing market, the buyers are calling the shots, said Richard G. Warner, who has been auctioning properties for a dozen years.
“With an auction, basically the seller is going to set the terms and conditions for the sale. In a buyer’s market, that’s inverted,” he said.
By picking the sale date for the property, the seller can be sure of eliminating the carrying costs of the property at that time, he said, for things such as taxes, insurance and maintenance.
Of course, there’s also a potential disadvantage — otherwise frustrated home sellers would be rushing to auction their properties.
“You auction your property with the understanding that you’re selling it as is, on cash terms, and it’s a reality check of what the market is willing to pay for that property at this time,” he said.
So auctions aren’t for everyone or suitable for all properties.
The National Association of Realtors says a good auction property is one that:
- in which the seller has 25 percent or more equity;
- is unique enough to encourage buyer interest and competition;
- has high carrying costs for the owner;
- is vacant and therefore more subject to vandalism and deterioration;
- is difficult to appraise.
Warner said lots of property categories are working well at auction these days: farmland, income properties and residences, especially higher-end homes.
“I think more people are looking at different alternatives to sell properties as the market has gotten stagnant, auctions among them,” he said. “There’s definitely been an increase in what I’d call the luxury home market at auction.”
Warner’s firm, Warner Real Estate & Auction Co., of Woodstown, has three properties in Atlantic County scheduled for auction Oct. 5:
- a bayfront building lot at 5105 Winchester Ave. in Ventnor;
- a two-story home converted to an office at 1742 Somers Point-Mays Landing Road in Egg Harbor Township;
- and an 8-acre parcel with seven lots, including roads and curbing, at Ninth and Garden avenues in the Rio Grande section of Middle Township.
Warner, of Pilesgrove, the township surrounding Woodstown in Salem County, said the seller is a small bank in the region that took the properties back in foreclosure.
He said the bank formed a limited liability corporation to sell the properties and preferred not to disclose its name.
County property records for the lot in Ventnor list First National Bank of Elmer as the holder of the prior owner’s mortgage.
“The bank had been paying the carrying costs and just made the decision, let’s get these off our books,” he said.
There are two main types of property auctions: absolute and reserve.
Warner said absolute auctions, in which there is no minimum reserve price for the property and it sells for the highest bid no matter how low, are rare.
“We do very few of them. You need to know that there is broad appeal for that type of auction,” he said. “I’ve had clients want to do an absolute auction and I’ve told them they’re better suited for a reserve or confirmation auction, where the seller has the right to confirm the high bid.”
There will be reserve prices on all three properties he’ll auction this week.
There also are two ways the auctioneer gets his commission, which Warner said was “similar” and “not lower” than an agent’s commission for a regular property sale.
One is the typical seller’s commission, a negotiated percentage of the sale price.
The other auctioneer payment is tacked onto the sale price as a buyer’s premium, a percentage specified in the auction description and one that can increase the cost to the bidding buyer significantly.
In the case of the Ventnor beachfront property that sold this month, the buyer’s premium of 10 percent added more than $400,000 to the winning bid.
Warner said that in real estate auctions, auctioneers are more commonly compensated using the buyer’s premium method.
A final issue to be considered with a property auction, he said, is where to hold the sale.
In the sale of bank-owned properties, the best location is usually offsite — not at any of the buildings or lots being sold, but a neutral location. Friday’s sale will be held at the Residence Inn in Somers Point at 3 p.m., after a final chance to review packets of information and a slide show about the properties.
On the other hand, the auction Oct. 26 of a restored 1790 house in Greenwich Township, Cumberland County, will be held onsite, he said, to let its beauty motivate buyers.
Even in the best of markets, no sale is a sure thing, and that applies to auctions, too.
The National Association of Realtors lists seven factors that it says mainly determine whether the auction of a property will be a success:
-- realistic expectations by the seller about the price, terms and timing;
-- desirability of the property and location;
-- choice of the auction type best suited to the property and seller;
-- a “well-planned, aggressive marketing/advertising campaign targeted to prospective purchasers”;
-- the professionalism of the real estate auction company;
-- the provision of full information about the property to prospective buyers ahead of time;
-- the condition of the property, including its financial and title status.
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