If you have been watching the Seattle real estate market in the past couple of weeks, you have undoubtedly heard about the big housing auction this past weekend. Some local builders were liquidating an inventory of ~90 homes in Washington in an unusual auction format at the Westin Hotel in Seattle. I saw this story in the Seattle Times, the Seattle PI and on just about every nightly news show I watched.
The hype would have you believe that you’d have a chance to get screaming deals on Seattle-area properties. Based on the large crowd and carnival-like atmosphere I saw, the hype generated by the auction house was a marketing success. The atmosphere in the closing room was almost surreal, with 40 or so “closing tables” with people lining up to sign contracts and make their earnest money deposits.
Did people get great deals? Some did, but the hype for this event was overblown. Most properties were bid up 100-150k from the enticing opening bids. As a buyer, you also had to pay a 5% premium on your price to fund the services of the auction house. In most cases, it appeared that what started as a screaming deal ended up as a “moderate deal”.
To some extent I think the excitement this generated in the press was a bit unfortunate, leading home buyers to believe that something magical was happening, almost as if market forces would somehow be suspended with unthinkably low sale prices. In reality, the auction format leads to more excitement than was probably necessary for the products being sold, with the final prices rising as a result.
Here is a rundown on why it wasn’t so exciting.
- Location, location, location – Most of these properties were in far flung locations outside of King County. Places like Stanwood, Port Orchard, Cle Elum and Ronald. Other than some very modest condos in Issaquah, there was little of interest for the metro-Seattle buyer, unless you were buying a second home.
- Initial bids were deceptively low – The opening bid was artificially low to get you in the door. Most were bid up over $100k from the opening price.
- Values were deceptively high – All of the properties had a “previous value” stated, often more than double the initial bid. The “previous value” was based on previous listing prices, sometime from awhile back. Outdated listing prices not indicate value of a property.
- Too much excitement – Let’s face it, auctions are fun. Many people get swept up in the bidding in a quest to win, rather than trying to maintain an analytical approach to the sale prices.
- You could get similar deals on your own – Once the properties were bid up and the buyers had paid the 5% premium, the resulting price felt similar to what you could get if you were a savvy negotiator.
Bottom line, if you find a property that you are interested in, and it appears that there is a motivated seller, don’t wait around for an auction. Put together a compelling but aggressive offer and you may be able to get yourself a good deal.