Here are a few more thoughts from one of our contacts in the auction world, regarding the decline of major condo auctions at downtown’s newer developments:
The first quarter is generally slow for auctions. The weather is a major factor, as you want people to come out and see the property when it looks the best. Banks generally don’t want to take additional losses in the first quarter, so they shy away from auctions, too. Currently we do have two condo auctions in other states, and we are starting to see some pick-up in interest nationally, as the planning needs to begin soon to time an auction for the spring and summer seasons.
In Chicago, the auction business has flatlined. Some developers I talk to are scared of auctions — the word auction is like a four-letter word to them. They see it as the method of last resort, when all else has failed and they have no other choices. Some developers don’t want to go to auction because they think they will hurt the clients who have already bought. Some have seen auctions recently that have been disasters. And some just think that the condo that was worth $400 a square foot in 2007 is still worth that in 2011, and that in six months everything will be fine and the buyers will come back.
But by not selling out his inventory and dragging sales for years, a developer is essentially trapping his earlier buyers into their units. In most cases, those owners can either rent out their units (while still taking a monthly loss), try to do a short sale, or just walk away entirely, leading to foreclosure and prices falling even lower.
Some of the developers with inventory haven’t sold a unit in months. So what is everyone doing? You’ve seen Invsco roll out huge price cuts — that’s one method. But when you factor in the slow rate of sales that are occurring, why wouldn’t you do an auction and sell as many units in three months as you normally would in a year? Yes there are costs to auction, but there are also carrying, staffing, and marketing costs from conventional sales, not to mention “make me an offer” advertisments that just sound desperate and sad.
You wrote recently about Silver Tower’s bulk sale. This one is intriguing: They drop prices, sales pick up, and they get down to less than 90 units remaining. Now they want to do a bulk sale, but why? If sales have been good, then why go to a bulk sale, where you almost always get less then you do at auction. But an auction isn’t even an option for them, it seems. I’m still trying to figure this one out.