Comments on: What Happened At The Atwater Auction Doesn't Need To Stay At The Auction

By: John Regan

John Regan — Mon, 28 Sep 2009 22:11:15 +0000

Yesterday 9/27/09, the Atwater released 18 additional condominiums for purchase. The asking prices average about 5% above the purchase prices for similar units at the auction.

I imagine that the release of these units is designed to tap into the possibility of a sale to an unsuccessful bidder (like us).

The small 5% premium suggests that the prices achieved at the auction are the acknowledged upper limit of market value, at least in the near term. And as your helpful comments suggest, … with financing likely to become more difficult, with continued deterioration in the real estate market generally and with a huge inventory of unsold units competing with distress sales and normal turnover of existing units, we should expect further price declines down the road.

My favorite Tower Residence #904 sold at auction for $464,000, #1004 (same plan) is now available for $475,000

By: Jeff

Jeff — Mon, 28 Sep 2009 21:02:37 +0000

John,

As an Appraiser of 18 years I can tell you that auctions are stage-setting events. Any subsequent sale of a comparable unit in South Waterfront will and MUST be compared to these sales. These units were open-market tested at unrealistic prices and went unsold. Only when they were re-priced at an auction were they able to garner purchasers, i.e. their true market value was just discovered.

If the market continues its decline, and there’s no doubt that it will, then the next auction will result in further depreciated unit prices, not to mention further equity destruction to the purchasers from the first event.

Last, I’ve learned over the years that auctions produce a mob mentality. The “I will not be out bidded” attitude that more often than not results in inflated prices. Better not to get involved in the “mob” mentality of an auction because just when you think you’re out…they pull you back in.

By: Leigh

Leigh — Tue, 22 Sep 2009 23:29:34 +0000

John, great point and the auctioneers understand that which is why only some of the units were on the auction block. So when is the next controlled auction for teh next 40 units, then the next 40 units? And when will these buyers try to sell in the open market?

By: Brat

Brat — Tue, 22 Sep 2009 20:54:45 +0000

Given the conditions in the mortgage market I see no reason for future prices to increase. Note the comments elsewhere on FHA loan requirements for condos.

By: John Regan

John Regan — Tue, 22 Sep 2009 19:43:52 +0000

My wife and I attended the Atwater Auction hoping to pay under $215,000 for a one-bedroom unit that received a top bid of $241,000. The atmosphere of the auction seemed to create its own market. We wonder wheter the prices achieved in the controlled atmosphere of an auction can be sustained in the open market, whether the auction results will become a cap from which future prices will decline or base from which future prices will increase.

By: Brat

Brat — Tue, 22 Sep 2009 19:13:19 +0000

“More interestingly the auction creates a unique dynamic for other developments (in the area) that are struggling to sell.”

Just how big an area will this bleed through to? Will lenders pressure other developers to adjust their offering prices?

The Atwater Place units had one parking space for each bedroom. In almost all the other developments they include one parking spot for all but the very very largest units. True the Atwater is in a construction zone so there would be some discount in value, but its high design liveable floor plans and attention to detail more than make up the difference. If I were an appraiser I would deduct the value of parking spaces from each one of those units, re-run the price per square foot then add back the parking space(s) for a valuation of similar class units in the core area. That will really pinch the pocket book for many developers.