experts: real estate column Wednesday, January 23, 2002

Seeking a Windfall at Property Auctions

Real estate auction sales in Canada are starting to become more popular.

By Ozzie Jurock

This article appeared in The Vancouver Sun on January 12, 2002

Of course, in Australia, auctions of real estate are old hat ... 95% of real estate sales are transacted via one form of an auction or another. But in Canada, auction sales are just emerging. There are two kinds of auctions. One is driven by the developer wanting to find a new way to market units. This one you want to avoid. Few deals here. Generally these are reserved bid auctions. (If the developer does not get his 'reserved' price he doesn't sell.) The other auction is the one driven by the financial institutions. They want to clear out the development to get the most cash back as soon as possible. This is where you want to be. Generally all of the units or at least a good portion have 'no reserve' (Any price will get the unit).

For us as investors it pays to remember, what the goals of the auction are. Here are the principles to remember when buying at an auction:

  1. Auctions are never haphazard. They are carefully coordinated and timed to create the maximum level of buying urgency. The idea isn't to give you a deal. The idea is to get the maximum possible return to the vendor/developer.
  2. Is the auction held by the bank or the developer? (One is MUST sell, the other MAY sell)
  3. Does the auction have at least 30% unreserved bids? (If there is no reserve, there is little hope for the great deal.)
  4. Do your due diligence beforehand. Preview and select 2 or 3 units. (No exception. You must see and know what you will bid on.). Don't bid on anything else.
  5. Watch out for a shill. (Rare in Canada ... still wooden eye wide open)
  6. Position yourself in the Auctioneers sight. If the bids are tied and won't budge, tradition says the bidder closest to the auctioneer takes the deal.
  7. Auctions are a psychological game. Do a head count when you come in. If there are lots of noses and not too much product, come in bold and strong right off the bat. If voice bids are allowed, don't wait for the auctioneer to chide the bids along but jump in with a strongish bid. This will overawe the other bidders (there is so much time left after all) and allow you to scoop up a place. A good auctioneer with a full room will actually encourage a 'good buy' up front to get the crowd's appetite heated up. If it is a cold and miserable night - the auction room is empty, stay back and wait. (Let the few real buyers get what they want - and get tapped out.)
  8. Never go in without your finances primed and ready. As in a large enough deposit to hold your suite/lot/house and a pre-approved mortgage to allow for a fast close.
  9. Make your bid in smaller than asked for increments. Once the bidding slows and the auctioneer has bounced along in $10,000 increments, offer a much smaller increment. Say you are slowing around $120,000, to his question "who will give me $130,000" offer $121,000. Often that will become the final bid.
  10. Come back after auction is finished and buy unsold units. Remember: Both at a bank auction and a developer's auction there is only one objective: sell the units. If the unit you pre-inspected didn't sell and/or your bid wasn't accepted, consider going back to the auctioneer immediately after the auction and offer to buy the unit if the price is right. The auctioneer eats only what he kills. He will go to the developer/bank to check and maybe you still get it at your price.
When it comes to auctions you never know when you're going to get lucky. People get tired, people get bored, people get impatient and all of the sudden it's towards the end of the auction and you're the only customer in the place and you're there with the knowledge and the cash and no competition and you can do yourself some serious good.

However, do not get caught up in the hype ...

Ozzie Jurock is the publisher of Jurock's Real Estate Insider an independent real estate advisory service. You can reach him at 604-683-1111 or e-mail ozzie@jurock.com




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