Final Denver Lofts Case Study

Visit www.AuctionByBuilder.com to see final case study under the Denver University Case Study section.

Best to all,

Kyle Cascioli
www.AuctionByBuilder.com

AuctionByBuilder.com assists Franklin Towers Lofts in Denver

First, let me take a moment to thank everyone involved in supporting our recent 5 Day Sale auction effort on the four (4) selected loft units. As discussed in the prior thread, it was a successful effort given current market conditions.

The builder built this project for over $225/SF and delivered it to market in August of 2008. Like many buyers, flippers, investors, and other builders, this fellow did all the right things at the wrong time in developing this eclectic urban infill 16 unit project.

We marketed the units for nearly 3 weeks and had over 20 pre-registrations, 4 pre-auction sealed bid entries, and had over 70 groups come through the project during the two week inspection period. By Sunday night we had 15 bidders on four units.

The round robin bidding session lasted 4.5 hours utilizing both phone and our online virtual auction room.

We had final and best bids for all units. We had great interest and success bidding up the 1 bedroom units, but the market didn’t react favorably to the two bedroom unit given the project’s limitation of one underground parking space per unit. It’s obvious that in a good market property defects or project design flaws do not appear to have as detrimental an impact on pricing. In a down-market such defects or flaws are glaringly obvious, come under great scrutiny, and have a significant detrimental impact on pricing.

On two of the one bedroom units we achieved roughly 83% and 85% of the builders target price and he is holding firm (a mistake for market reasons too numerous to address in this email, but that will be addressed in the case study) and while everyone is still talking, I do not believe those two potential transactions will occur. However, it appears that we are going to contract on the the fourth unit, 3D.

The builder was extremely happy with the 5 Day Sale undertaking, as it generated great market interest and exposure for the project, created buyer activity where none existed before, produced excellent direct market feedback on the project’s attributes and limitations, resulted in 15 offers for the 4 units, and may still conclude with the sale of a unit in an extremely dysfunctional marketplace.

We’ll continue to keep you posted as events unfold and will post a new case study on the site soon.

It really works …

Kyle Cascioli
www.AuctionByBuilder.com

Denver New Lofts Auction a Success!

Hi Everyone:

We wrapped up our round robin bidding sessions last night – they lasted 4.5 hours.  We had 15 bidders on the four (4) units.

A very successful weekend.

http://www.denverloftsauction.com/auction-room.html

We’re tired but will provide an update and details regarding this auction case study later this week.

Thanks to all who participated in the process.

Kyle Cascioli
www.AuctionBySeller.com
www.AuctionByAgent.com
www.AuctionByBuilder.com

Saturday’s 5 Day Sale Home Auction Inspection

Hi Everyone:

We had a great turnout today. Over 40 people inspected the project and we have 11 bids thus far.

We’ll keep you posted.

Cheers,

Kyle Cascioli
www.AuctionByBuilder.com

Pre-5 Day Sale Auction Progress Report

Hi Everyone:

We’ve had 46 contacts thus far and have had 19 potential bidders “pre-register” on our website.

Two bidders have already submitted online “sealed bids.”

Check out the property at www.DenverLoftsAuction.com

The property is open for inspection this weekend (March 7 & 8, 2009) and we’ll keep our Blog viewers posted on our progress.

Best to all,

Kyle Cascioli
www.AuctionByBuilder.com

Denver New Lofts 5 Day Sale Auction

NEW Premier Denver Lofts 5 Day Sale Auction
Franklin Towers
1738 Franklin Street
Denver, Colorado 80218

Premier Denver Lofts!
5 DAY SALE AUCTION REGISTRATION >>
Here’s your chance to get a great deal on a new selection of modern, stylish, urban lofts located near the heart of Downtown Denver.

This hip and exciting Uptown neighborhood is just east of Downtown and within blocks of fine restaurants, clubs and shopping.

Each loft features unique, open floor plans, 10 foot ceilings, custom, ceramic tile, designer lighting and island kitchens with Granite slab countertops.

We have 1, 2 and 3 bedrooms available. The penthouse boasts two levels, an atrium, and a 5th floor private terrace with epic city and mountain views!

While each of these loft-style homes have their own individual character, they all boast the sleek, urban architecture and design elements that discriminating buyers expect to find in the most upscale Denver lofts. All of these loft residences feature imaginative interior finishes, quality construction, and the most modern appliances and fixtures. All have terraces or balconies and many have views of the mountains and Denver’s magnificent skyline.

The Franklin Lofts provide true urban living at its finest without the Downtown Denver price tag.

Register today at www.DenverLoftsAuction.com for the upcoming 5 Day Sale Auction of these impressive loft residences and receive a
“Best Bidder” Kacey Fine Furniture Coupon worth $1,500!
Four hip 1,000+ SF units to be auctioned March 8th to the “Best Bidders”
Starting Bids for Units range from $139,500 to $239,500!

Call Alison at 970-481-8937 or email her at: amzapf@aol.com This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Real Estate Auctioning Works for Buyers and Sellers

What’s Right about the Real Estate Auctioning Business Model?

By: Kyle Cascioli – AuctionBySeller.com

December 22, 2008

As a follow up to my earlier discussion about “What’s Wrong with the Real Estate Auction Business Model,” let’s talk about what the advantages are of pursuing this real estate sales property exit strategy.

By definition, auctioning “best practices” produce market offers (prices) at specific (static) points in time (date).

In my earlier piece on “What’s Wrong with the Real Estate Auctioning Model?” I explained what I believe is wrong with the traditional property listing model. In the traditional listing model, sellers typically overprice their property and passively wait for the market to engage them. National Association of Realtor studies consitantly report that over 80% of sellers dictate the listing price of their home to their agents prior to listing. This implies that less than 20% of all real estate agents are either trusted regarding their pricing recommendation or disagree with their clients perception of value. The apparent acquiesence of real estate professionals to sellers regarding the value of their homes (listing price) in the majority of cases is fine in a good market, but disasterous in a poor one. This is even more exacerbated in this downcycle by the unprecedented (structural) economic events (Circa 2008), and those events debilitating effect on residential property values in both the short-term and foreseeable future.

This approach does neither the client nor agent any good as the property languishes on the market, as both client and agent chase the market down through price reductions in utter frustration (Circa 2008). By the way, this traditional real estate listing pricing model is known as a “Dutch Auction,” an auction where the seller starts high and takes the first lower acceptable offer.

In my opinion, the biggest single advantage to the auctioning approach is that it produces “true market” offers more quickly, regardless of market conditions. The auctioning approach changes the dynamic of making an offer to the favor of buyers. Instead of a seller pricing a property high and challenging buyers to “make offers,” auctioning allows the seller to price low and empower buyers to challenge them (sellers) to “accept their offers.” This is a dynamic that accomplishes two things. One it creates a comfort zone for buyers to engage sellers directly and “make their best offers” for the property without feeling as though they are wasting their time or insulting the seller. Two, auction methodology also intrigues and attracts the “fringe” buyer that is capable of purchasing but is perhaps not actively looking at properties (and likely not represented).

Fee structure aside, the auction model can increase the likelihood of a direct sale to an unrepresented buyer and potentially reduce transactions fees (commissions). The auction process also compresses the property sales cycle, flattens the lines of communication between buyers and sellers, produces more qualified buyers than the traditional listing process, increases the sellers’ return on investment (ROI) on their advertising, and is a true indicator of a properties market value.

Let’s discuss these advantages individually.

First, the auction models “proactive” marketing approach targets the consumer directly in addition to the real estate brokerage community. Whether it is that those who attend auctions are more likely to be direct buyers (unrepresented), the consumer targeted advertising campaign promoting the auction, the current resistance or the Realtor community to embrace the auctioning model as a legitimate sales mechanism, or a combination of all of the above, most bidders today are represented by agents (they have attorneys). In these cases, the seller saves money on fees and can be more competitive on sales price. Thus, another advantage to the auction/5 Day Sale model is that it is more likely to result in a direct sale.

Second the auction process compresses the property sales cycle because the auction is held on a specific date. The property is intended to be sold on that date, thus creating a sense of urgency for the interested buyers. When compared with the traditional real estate “Dutch Auction” listing approach described above, the auction model generates a timely sale, which allows the seller to benefit by avoiding additional carrying costs, exposing themselves to increased market pricing risk, and a shrinking buyer pool, given our deteriorating national economy and tightening credit at the retail mortgage levels.

The theory of the “Time Value of Money” applies to real estate transactions as well as cash. In a market such as ours (Circa2008) a sale today is worth more than a sale tomorrow for most sellers.

Third, the auction model – while relying upon the support and counsel of real estate/auctioning professionals – promotes direct dialogue between sellers and buyers. This facilitates the constructive exchange of information (unfiltered by intermediaries), and the process is a more consumer friendly one from the buyers perspective. This process also allows sellers to benefit by having “the market speak directly to them,” as bidders share what they like about the home, do not like, and what competitive properties they may be considering. It’s one thing for the sellers’ agents to “debrief” clients after getting showing-feedback from a buyers’ agents on a showing they (sellers’ agents) often don’t attend, but it’s very illuminating for a seller to get direct feedback from buyers in real time. Seller’s gain near perfect information regarding bidders’ interest, and often, a rapport develops between buyers and sellers during the inspection process that can be helpful when finalizing the terms of a sale.

Fourth, those attending auctions under formal auction models (where bidders are required to post “good funds” earnest monies to be eligible to bid), or less formal auction models such as the 5 Day Sale, those participating in real estate auctions are usually financially qualified and more likely to be all-cash buyers.

Fifth, when run correctly the auction model is the best real indicator of a given properties true “market value” at a given point. Appraisals, comparative market analyses, brokers’ opinions of values, they are all “well-informed guesses” based on historic sales data and a given real estate professional’s market perceptions and value opinions. The auction model identifies a pool of buyers at a specific date (static point in time) and then facilitates their (buyers) ability to compete for the subject property.

Sixth, the auction format increases seller’s return on investment (ROI) on his/her advertising dollar. In a soft market, all properties become commodities (with many substitutes) and a seller’s given real estate ad that advertises prices near or above the market gets lost in the crowd of similar real estate offerings, regardless of advertising medium (print, online, etc.). The fact that the auction format begins with a significant “discount-to-market” via “starting bid price” distinuishes the property from all of its competitors, garners viewing, gets clipped by potential buyers, has increased shelf-life, and is therefore more effective in generating market interest. If the advertising is more effective in generating above market interest based on pricing, then the return on investment (ROI) is greater than traditional real estate advertising with offerings priced at or above market.

In closing, anyone considering pursuing an auction or 5 Day Sale strategy for his/her home should weigh the “cost-benefit” of conducting that sale, given both the price point of his/her property and price expectations.

For more information on our auctioning and 5 Day Sale online real estate auction platform resources, expertise, and consulting, visit our websites at:

www.AuctionBySeller.com for sellers and …

www.AuctionByRealtor.com for agents.

© 2008Barrett Associates, Inc All Rights Reserved

Real Estate Auctioning

What’s Wrong with the Real Estate Auctioning Business Model?
By: Kyle Cascioli – AuctionBySeller.com
December 20, 2008

One day several years ago while I was director of real estate services for a “start-up” residential real estate e-commerce venture that failed, a key investor in the company asked me the question: “How do I sell a home for free?”

Being an adjunct professor of real estate in the business school of a prestigious university, a veteran of both the commercial and residential markets, and a frustrated member of the National Association of Realtors (NAR), I surprised myself by having to stretch for an answer. In a flash it came to me … and I replied to the investor that you can “auction the property.”

After all, at a traditional auction the seller pays the auctioneer to promote and manage the auction process, but no fees or commissions are usually paid to the buyer or the buyer’s representative(s) if he or she has one, which is not always the case.

Along with my role at the time in helping to “shape our real estate e-commerce business model,” and interest in verifying my naïve assumption that auctioning is a way to sell real estate for free, I decided to research the subject further.

I came across a book entitled “How to Sell Your Home in 5 Days (Bill Effros; Workman Publishers, New York), a “consumer-centric” work targeting the “do-it-yourselfer (For Sale By Owner).” The book does an excellent job in both explaining the process of auctioning and the fundamentals of running an auction on your home in 5 Days in order to get buyers to competitively bid on your property.

After reading the book in 2007, I decided that it would be a good exercise for my students to combine our study of real estate theory at the university with contemporary real estate practice. I solicited student volunteers to help document a 5 Day Sale/ Home Auction. We found a seller in Denver online who was in need of help in conducting his auction, and we offered to help in exchange for the right to videotape and document the effort as a case study. This auction/5 Day Sale was successful and you can view the video and review our case studies at: www.AuctionBySeller.com .

My curiosity peaked; I continued to research auctioneering industry practices and even joined our state auctioneering association. While not all auctioneers sell real estate, those that do must hold real estate licenses in their given state of operation. While all states require real estate practitioners to be licensed (and therefore regulated), not all states require that auctioneers be licensed.

Auctions can take many forms. On the one end of the spectrum, there is the “absolute auction” that results in a sale regardless of price as long as the minimum disclosed bid level is met (assuming there is one). On the other end of the spectrum, there is the auction with an “undisclosed bid.” In each of these approaches, the point is to start your bidding at an either artificially low – or minimal acceptable – price point so as to engage as many potential buyers available in a market at a given point in time, and then to bid those potential buyers competitively to find the “best buyer” for the property. “Best buyer” is usually defined as most competitive bidder that meets or exceeds the seller’s minimal acceptable price (reserve).

By definition, auctioning “best practices” produce market offers (prices) at specific (static) points in time (dates).

I have since volunteered academically to assist and objectively document multiple real estate auctions and/or 5 Day Sales, all of which have been successful (generated offers), but not all of which resulted in the sale of the property at that time. That said, they all provided “perfect market” feedback directly from buyers to sellers regarding the given properties’ features and those buyers perception of market value. For the record, I believe the auction methodology is a valid and legitimate real estate sales strategy. I am particularly impressed with the fact that auctioning is a much more “proactive” sales strategy than is the traditional listing of real estate, which I believe to be a passive sales strategy.

The question then becomes, is auctioning a cost effective method for selling real estate when compared to traditional methods of selling real estate? The fact is that it takes time, money, and effort to run an auction, sell the property yourself, or list it for sale with an agent.

Most auctioneers will charge a significant auction marketing fee to cover promotional costs and their time. Additionally, many auction firms charge a “buyers premium,” a fee that the buyer pays to the auctioneer “net” of their offer to the seller. This means that while the seller pays no fees directly, the buyers’ offers are “net” of any auction and buyer’s agent fees. Auctioneers’ “buyers premiums” for real estate transactions range from 5% to 10%, depending upon whether the bidders are represented by real estate agents or not.

We already know what’s wrong with the traditional real estate listing model where we start by overpricing our property and listing it. This approach does neither the client nor agent any good as the property languishes on the market as both client and agent chase the market down through price reductions in frustration together, (Circa 2008). By the way, this traditional real estate listing pricing model is known as a “Dutch Auction,” an auction where the seller starts high and takes the first lower acceptable offer.

So … what then is wrong with the auctioning model?

In its current form, the traditional auctioning model has the potential to lead to “conflicts of interest” between sellers and auctioneers. Additionaly, they are just as expensive as – or more so – than the marketing costs associated with the traditional listing of real estate. That additional expense is often justified, given that the auction approach produces timely sales, but if that sale involves an auctioneer producing a buyer represented by an agent earning a full fee, then those combined fees – while paid by the buyers – reduce those buyers’ effective purchasing power “net” to the seller. In such a case, the seller achieves a lower effective sales price.

Whether it’s an auction or a traditional listing the buyer always bears the cost of fees, this is because all fees are paid for from the proceeds of the sale.

Is there an alternative consumer-friendly auctioning business model for sellers and agents alike?

Yes … through our online real estate auction platform resources, expertise, and consulting. We advocate, assist and support seller’s and sellers’ agents while chatging no “buyers premiums.”

Check us out at http://www.AuctionBySeller.com for sellers and http://AuctionByRealtor.com for agents.

© 2008Barrett Associates, Inc All Rights Reserved