I attended a property auction up in Scottsdale last weekend with a client looking to buy. She was in town from Montana wanting to buy a second home/investment property out here for her and her husband to be near to warm winters and his daughter, who lives in Paradise Valley. I had set her up with an email auto-search of the types of properties for which she was looking, and one of the houses that popped up on the search was a model home being sold at auction.
I’m sure you’ve heard of the auction phenomenon. The Dobson Bay Club townhouses down the street from my parents had a huge ‘UP FOR AUCTION’ banner hanging from their front gate for several months last spring, inciting many a passing conversation among the Dobson Ranch bunch.
“Starting From [some inconceivably low number]!”, the advertising always reads on these types of sales. People who aren’t in the market for this kind of property at all suddenly sit up and take notice, wondering to themselves, How can I make this work for me and sell it for a huge profit? Even those who consider themselves to be savvy of the market, like myself, see deals like these and wonder, What will these end up going for? And how exactly does the whole thing work?
So I was excited to find myself in sitting the fifth row back from a stage in one of the ballrooms at the Hyatt Regency, Scottsdale last Sunday, at a Kennedy Wilson run property auction of Trend model homes.
Here are the basics:
1. My client had to view and do any inspections she wanted on the properties before the auction date. The houses were sold ‘As-Is’ with no inspection contingencies.
2. She also had to be pre-qualified through the preferred lender at the auction in order to be given a number to bid (in fact, just to be let in the door).
3. They were auctioning off 30 properties total; all model homes from four different Trend Home communities: Cooley Station in Gilbert, Lakes at Annecy in Gilbert, Tartesso in Buckeye and Cortessa in Waddell.
4. The starting bids were the minimum sales price (versus having an unknown reserve amount that the house won’t sell for unless it is met).
5. The starting bids ranged from $90,000 for a 1351 square foot house in Buckeye to $375,000 for an almost 7000 square foot house in Waddell.
And basically, it was pretty much just like an auction you see on TV. There was a head auctioneer on the stage shouting out prices and all of the buyers had big yellow numbers. The auctioneer had three helper guys in matching suits who would ran around the edges of the crowd and shrieked a sort of ‘Hep!’ when someone bid. It was loud (I don’t love loud). And sadly, my buyer didn’t even get a chance to bid. She had a maximum bid price that she and her husband had predetermined that was about 145% of the lowest bid price, and she didn’t even get to raise her big yellow card. That’s how quick things went.
We only stayed for the first 18 houses (about 45 minutes) because my client was bummed out that she’d lost. But here are some numbers:
House #1 (3/2, 1801 square feet, Gilbert): Minimum Bid of $125,000 – Sold for $213,000
House #2 (3/3, 2455 square feet, Gilbert): Minimum Bid of $145,000 – Sold for $225,000
House #7 (5/3, 6914 square feet, Waddell): Minimum Bid of $375,000 – Sold for $446,000
I did the math on the 18 I watched and together, they sold for about 137% of the minimum bid. The closest to minimum bid of the ones I saw went for 113% of the minimum and the farthest went for 169%. The ones my client liked were the most desirable ones and went for the higher end of things.
All in all, I think for the most part these houses were a decent deal. I have some concerns about buying a model home in a half-built community (Trend Homes filed for bankruptcy in February of this year), but the prices stand up to the comparative properties. However, I think a lot of the people who came in to this auction had their eyes on the prize of the minimum bid. In real estate, that listed number is generally a maximum bid, so it’s easy to get excited about the idea of no one else wanting that one house that you do. That was just not the case. There were plenty of people there who would have taken any one of those houses for anywhere close to the minimum bid.