Residential Real Estate Auction
I had an interesting and unusual day yesterday. Dan and I went to Sun Prairie WI for a developer’s “inventory Reduction” auction. Dan works in the real estate business in Milwaukee and was interested in the process and audience for such an event.. He invited me along for the ride.
The auction was performed by J. P. King. I had no idea what to expect. At auction were units from two subdivisions. The audience was large enough to fill three sections of the Crowne Plaza Hotel meeting room with standing room only. There were four single family homes, about 6 building lots, and maybe 50 condo units.
Much to my surprise the audience was not real estate interests but rather mainstream America. I think that most people in the audience were there to purchase a property for personal occupancy rather than for investment. Only two buyers purchased more than one property.
Helping the sale was the fact that Anchor Bank offered no documentation 30 year fixed loans with only 10% down. The terms of the sale were 5% upon successful bid, 5% within 30 days, all properties sold as is where is. In addition there was a 10% of the bid price premium that I believe went to the auction company.
The entire process took about four hours. In general the properties sold at about 40% to 45% of the developer’s original sales price. Some of the units were rented but many of the leases were set to expire within one or two months of the sales. This was an interesting additional piece of information. We noted that most of the rents were well below the monthly carrying costs for the units if purchased at the original prices and close to break even at the final sale prices.
After the auction we drove out to look at the properties. Dan had not done this before as his interest was not in purchasing units but rather observing the process. Both subdivisions were close to completion of the current build. Apparently the developer had been offering a rent to own program, hence the large number of units that were leased. We also discovered that quite of few of the previously owned properties were also listed for sale by the owners. Further there were large tracts of yet to be developed land (no roads, etc.) within the original communities.
All in all an interesting experience.