If you’re a regular reader of the Wall Street Journal, you’ve undoubtedly seen the ad. It’s a big ad. A pretty one. It features a big sky and a bigger house, and if you didn’t know better, you’d think someone, somewhere, is about to get a deal. The house is up for auction at some point in the future, and the ad encourages the reader to gaze at the splendor of this massive full scale mansion that appears to be nestled on some wooded mountainside in some state in the far West where cowboy hats aren’t worn with irony. The ad probably caught your attention, but there’s one glaring omission in this and every other auction ad ever published: If the house is up for auction, you can bet your bottom loving dollar that the home is an albatross.
Much like the magical marketing phrases of recent years (Bank Owned!!, REO!!!, Distressed Seller!!!!- see what I did there? I added one extra exclamation point after each phrase to further drive home the hysterical excitement that the phrases induce) the idea of a real estate auction makes a buyer feel pretty darn intelligent. It seems like a zero sum game, the auction. It smells like an opportunity to buy a property for less than the market value ( even though whatever the ultimate sales price of any property is ends up being the actual fair market price), and buyers must respond well to such selling arrangements or the auction companies wouldn’t be able to consistently litter the pages of my newspapers with their fee simple auction wares. It smells like a rare opportunity to purchase an overlooked gem, but more times than not it’s a way to attract superficial interest in a property that has long since grown stagnant on the open market. If the home was a deal, or if it was desirable by any measure, don’t you think the house would have sold long before the auction house was called in to print their glossy brochures?
There are many types of auctions, and while the sort that I’m bemoaning isn’t the de facto auction that a sheriff’s sale actually is, that form of auction bears a quick explanation. Sheriff’s sales are essentially the vehicle through which a bank puts a defaulted buyer up against a hard redemption deadline. If you’re interested in a sheriff’s sale, you should be aware that more times than not the bank will set the opening bid on the property at the total amount that they are owned. If they are owned $401k, they’ll probably bid $401k on the property at sheriff’s sale in order to protect their interest in the property. If you’re interested in that particular property and you go to the sheriff’s sale (auction) thinking you’re going to buy that home for $200k, be prepared to walk away empty handed. This style of auction is happening every day all over these United States, and they happen three days a week in Walworth County. I watch these auctions every week, and I generally show up to bid on one property per year, which proves how rare it is to find a deal at such an event.
The high end auctions that have been flooding the interweb and newspapers alike are generally initiated as a creative way to attract interest in a property that has long since grown stale. If you have a property that has been logging serious time on the open market, and it just so happens to be some multi-million dollar mountain retreat, you may be inclined to hire an auction company to sell that home for you. As a buyer, you may be inclined to pursue that property. As a Realtor, I’m inclined to tell you that you’re probably excited about buying a property that the broad market has already rejected. I’ve seen it happen in Walworth County over the past few years. Auctions are advertised, auctions are held, and more times that not the home being auctioned off doesn’t sell. It doesn’t sell because it’s an overpriced property, and a reserve at an auction is no different than a stubborn seller’s MLS listed asking price. Real estate auctions typically represent an attempt to get a buyer to buy a property that they have already dismissed. If you don’t believe me, watch for high end auction ads and check into the history of the property- chances are the sellers have already exhausted conventional marketing avenues and have opted for the auction to try to rekindle interest.
Auctions bore me. They probably bore you too, as they should. If you want to buy something at an auction, be sure to only attend an absolute auction without a reserve. Better yet, if the idea of an auction sounds thrilling, Mecum is hosting a tractor auction in Walworth in March. It’s going once, going twice, sold to the lady in the second row.