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Real Estate Auction

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Ariba

Senior Member
Joined
Feb 8, 2004
Professional Status
Certified Residential Appraiser
State
Colorado
I would like some input on a rural condominium property. I am appraising 3 condominiums that were recently sold at a real estate auction. The condominiums were sold Absolute, meaning that they were sold to the highest bidder regardless of price.

There are no other condominiums in the market area and therefore NO comparables. However, there were a total of 20 condominiums sold at the auction in the same building. Eight have closed so far. I will choose the three best comparables for my report.

My question:

since no market exists for condominiums in this rural area and no sales are available, other than the once sold at the auction, do these sales establish the market for this rural area? To put it another way: can a market be established by a real estate auction since these sales can be considered distressed?

Can anyone think of a reason were you could/would appraise a condominium for more than the highest bid? Can these sales be considered distressed sales and make an adjustment in the grid? Based on experiences of other real estate auctions?

Any words of wisdom regarding real estate auction would be appreciated?

Ron :unsure:
 
can a market be established by a real estate auction since these sales can be considered distressed?

Go back an look at the definition of a market sale. In certain areas where there are a lot of foreclosures or auctions they could be and are the market. After all would you pay lets say $25,000 more for the same unit offered from a Realtor office for a unit in the complex or go to auction and by a similar unit at auction for $25,000 less.

Market Sale Definition:

"The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus."

Implicit in this definition is the consummation of a sale as of a specified date and the passing of tile from seller to buyer under conditions whereby:

(1) buyer and seller are typically motivated - True in your auction case, seller is bank exchanging land asset (long term investment) for cash, buyer is buying at a price they deem to be worthwhile.

(2) both parties are well informed or well advised and each acting in what he or she considers his or her own best interest. - True again, bank is well informed and acting in its self best interest, buyer buying at a price they consider to be good.

(3) a reasonable time is allowed for exposure to open market - True, auction was well publicized and advertised.

(4) payment is made in terms of cash or in terms of financial arrangements comparable - True, typical terms of an auction.

(5) transfer of title from seller to buyer - True, once the auction was over, the cash was given from seller to buyer in exchange for title.

Based on your limited description of the situation the auction properties establish the market.
 
Good answer Steve

Our current RE market is so hot, auction of vacant land often result in prices generally preceived as ABOVE market value. But only a few miles West sales are so few and far between, auctions often account for 30-60% of all vacant land sales, especially in SE Kansas where ranchland and farmland is auctioned "all the time" and are the established market and marketing method.

Even in sales where there is no absolute, the auction generates the interest that results in a final negoiation from the most interested buyers.
 
Steve,

I would agree with for the most part, however what do you feel about the element of " auction fever" and it's effect on prices?
 
Steve,

Thank you for your reply and I agree. However, as we know there is a stigma associated with any kind of auction involving, real estate, estates, personal property, etc, that you are getting a bargain. Also, the market created/established by a real estate auction is unique, in a sense that you are selling 20 units in a very short time frame (3 hours). This is normally the case and the market has no time to adjust. Can or should you adjust for this based on data from other real estate auction?

I will be tracking these units for future sales and maybe develop a methology for adjusting future auction value after the market has settled down. Is there any data out there on properties that were sold by auction and their resale values?

Ron :P
 
Ron - an auction is not a sale - it's liquidation of assests. It doesn't fall within the definition of market value. Steve's explanation is excellent. Now, I've got a question for you. You stated:
There are no other condominiums in the market area and therefore NO comparables
Do you know how they got funding and financing in the first place? Who was in title to authorize the auction? For the developer to get financing there had to have been an appraisal performed for the bank, lender, investor.

Suggestion - since you show Denver - why not compare site built SFR's in the area that you're now concerned about with similar site built SFR's in an are close by that might also have a condo market, all things similar. You could then extract a ratio that you could apply to the condos as a comparison to the ones you're appraising.

Auctions & auction fever are not the market. It's a transaction that is not covered by the definition of market value. Good luck with it. It's going to be harder than what you first thought.
 
Otis,

I knew from the very beginning that it was going to be a challenge, that is why I toke the assignment. In this instance it was a beautiful drive through the mountains with the wife and staying at a bed & breakfast overnight. Some hiking and getting paid to boot. This is why I like appraising. Also, assignments like these are opportunities to get out of your routine and meet with the locals.

The county data is not on the Internet, there is no MLS. The only way to gather the data is the old fashion way. You have to communicate with the locals, police, fireman, real estate agents, and county assessor. Did not hurt either that I took up boxes of Krispy Crème donuts to gain their trust being a city sleeker and all.

The owners of the condominiums offered the wife and me to stay in one of the furnished units, I declined. But it brings up an interesting question, if I had accepted would it be in violation of USPAP. I think not, to me it qualifies as additional research and data collection.

This market area is unique, in that it provides housing for employees that commute and are employed in resort areas. No other market like it. You cannot go too close to the resort areas, since that serves a different cliental and is a different market area all together. No cost approach either since it is a condominium. I probable end up using the auction sales and disclose, disclose.

Otis, maybe, you can help me with the addendum, since from reading previous post you seems to have a reputation along those lines. :D All kidding aside, if you have any suggestions I welcome them.

Ron :P
 
Otis,

Steve said
Based on your limited description of the situation the auction properties establish the market.

Otis said
an auction is not a sale - it's liquidation of assests. It doesn't fall within the definition of market value. Steve's explanation is excellent

Am I missing something in these posts?

Ron :huh:
 
Originally posted by Ron Seylhouwer@Aug 14 2004, 01:19 PM
Otis,

Steve said
Based on your limited description of the situation the auction properties establish the market.

Otis said
an auction is not a sale - it's liquidation of assests. It doesn't fall within the definition of market value. Steve's explanation is excellent.

Am I missing something?

Ron :unsure:
Auctions & auction fever are not the market. It's a transaction that is not covered by the definition of market value.

Yes Sir, IMHO. I don't believe that someone unloading 3 to 20 units at an auction is reflection of market value. Re-read the definition of market value like Steve mentioned earlier.

BTW - the bid for the job should have been a fee plus expenses. Then stay at the condo, pay rent, and charge back. :cool:

BTW - coffee and long talks with the locals over the health of the herds or if it's going to rain or how bad a snow storm to expect goes a long way towards making friends, long term friends, in the country. I developed relationships many years ago and they're still standing. I get more information, than most of the city appraisers who just wonder in off the streets smacking gum. The Krispy Kreme idea was good. Next time take several boxes so you can always leave one at each office or shop.
:cool:

Oh --- And for the addendum - talk to Tim from Ducksville TX - he's got a garage full of them or DB from the hills - I saw where he was up to 108 pages. :rainfro: :rainfro:
 
Auctions do not normally reflect market value- but in THIS case, they do, since there were no other sales and apprantly no established resale market yet.

In this isolated scenario, the auction represents the "typical " market. I'd disclose that, and use the auctioned sales.

By the way, auctions ARE sales- not just a liquidation of assets, although they can be used for that purpose. Sothebys, Christies etc auctions art and antiques at sky high prices- in any event, an auction is just an established way to sell something.

In your rural market for these condos, at this time, that was the "typical " method of sale.
 
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