Who are the losers at auctions?

I watched a property near me go to auction; prior to the auction, it was listed at $360K for many months. It sold at the "no reserve, absolute" auction for $380K.

If the buyer had done their due diligence, they would have known it sat unsold for almost a year.

Well, he knows that now, he's been trying to sell it for $380K (after a complete reno) for about 6 months. He started the listing at an optimistic $415K a year ago, then chopped to $399K.

The point is, I haven't seen any actual bargains at auction. I usually see buyers paying about 15-20% off previous list, which they could have gotten with a little negotiation. But I think a lot of developers don't like to negotiate, because headquarters will insist on a set bottom price. This price is usually set by the bank holding the developer's loan. Only after much time and stress can the bank be impressed with the urgency to sell. Then they finally approve an auction. And units close at around the same figure they refused a few months ago. The process is a waste of time and money for everyone involved.

I'm sure there are stories in distressed areas about homes going for pennies on the dollar, but in a premium area they tend to go for a small discount or remain unsold. It's a come-on.

When I saw your headline about the losers at auction, I thought the answer was going to be "the buyers".

Actually, needsdadvice, I don't disagree that many buyers neglect to perform their due diligence and so overpay. I wrote that too. Often, it's investors who most actively bid, but they commonly drop out when the perceived discount drops below 20-25 percent.

"they commonly drop out when the perceived discount drops below 20-25 percent."

Leaving the bidding to those less informed and the final purchase price to be not a huge savings.

Malcolm, I love you like a brother, but seriously do something to upgrade the graphics on that blog. The look distracts from the quality of the info.

I'm confused about how both buyers and sellers could lose out in a zero-sum transaction like this. Do the auctioneers take more than the traditional 6% broker fee?

Based on the data presented, it seems like auctions do exactly what they're purported to do--rapidly set prices in a market that aren't particularly far off what would be settled on in a much longer time period through the traditional model. Sure, that implies that they're not great deals for buyers and the sellers don't make a killing either, but that's sort of the definition of the "correct" price, no?

needsadvice, Brother, hmmm. I'd love a call from you to discuss what you don't like about the graphics. I'm open to changing them.

jordyn, without drastically cutting prices before they consider an auction, the developers of languishing condos have learned the hard way that their inventory won't sell. But if they would simply cut prices as much as the auctions require, those developers would find out just about as fast what their properties are worth and then sell them off quickly.

... in a bidding war. Essentially an auction, but without the irrational exuberance that comes with the expectation that an auction is tantamount to carpetbagging, at any price.

Who are the losers?

They winner. Every time. Especially if they want to sell again soon. Its the winners' curse. The winner has just paid more for the asset than anyone else wanted to pay. So if the auction marketing is wide enough (especially if there is some competitive bidding, and folks get a little hot and sheep-like), there is no greater sucker than the winner.

Now - Mr or Ms Winner isn't really a loser if they can afford the property and plan to live in it for a long time... then they can happily "consume" their housing and enjoy living in their dream property (which costs them, but thats ok, they can afford it)....

"They winner. Every time. Especially if they want to sell again soon. Its the winners' curse. The winner has just paid more for the asset than anyone else wanted to pay. So if the auction marketing is wide enough (especially if there is some competitive bidding, and folks get a little hot and sheep-like), there is no greater sucker than the winner."

This is identically true for real estate purchased through the traditional route, no?