Why not do FSBO via auction?

Not a broker, but as a regular buyer at auction, and occasional r/e buyer, I'd say that the auction market is viewed as a 'last resort' selling option. Artwork is typically sold through a private dealer, either one that represents the artists, or a dealer with a history of handling a category of work. Like listing brokers, dealers shop their inventory around to known buyers, museums, and other dealers in hopes of placing a work. The value in selling at auction was the expediency, not the sale price. With the heating up of the auction market in the last 20+ years, this value proposition has changed a bit, but I think it generally still holds true. The big auction houses also shop around works that they're scheduling for sale, so potential buyers can do their own due diligence, and to have time to get theirs done (which can be as daunting as due diligence on a significant co-op purchase). I think the challenge w/ r/e in an auction environment is the third parties: banks, co-op boards, etc., and the logistics of the auction: the mechanics of an auction add a layer of administration and complexity to a relatively straightforward sale contract process. I'm not seeing what the value-add proposition is for the buyer or seller - price, time, certainty, anonymity, guarantee?

Additionally, in NY State, 'auctioneer' is a licensed profession. Would you let brokers conduct the auction, or would it need to be somebody else?

Thanks Aaron. Basically, what you are saying there is significant amount of selling/due diligence/admin activity needed even before the auction. The current real-estate model is essentially compensating the selling broker for that (I am not saying that current commission rates are justified). Licensing is an additional quirk.

And there are certainly properties that are sold at auction (not just the distressed/foreclosed ones). I've seen it done elsewhere in New York state, where the principal value proposition is immediacy.

300 - I do think that auctions are an underutilized process for many types of sellers. I think that the key is making sure it is a properly managed auction (e.g., plenty of upfront visibility, very clear rules of bidding, plenty of opportunity to discuss what makes a competitive bid (e.g,. price, certainty, speed..) and a large enough bidding window so that you capture reasonable buyers). It forces buyers to act in a way that traditional listings do not.

Can't work for co-ops. Condos have sufficient liquidity that an auction isn't necessary.

Wouldn't work for co-ops bc of board approval. Only sponsor units.

In a situation with multiple interested buyers, and when it is fairly done, the selling broker's request for 'best and final offer' by a particular date simulates part of the traditional auction process (i.e., left bids by absentee bidders). I agree that auctions are an underutilized form, and NYState rules around how auctions are conducted would address some of the items TeamM mentions.

Aaron, I see. The current real estate model amounts to an auction if there are multiple bidders except the bids are not necessarily revealed. Thanks.

Remember that at the end of the auction the purchaser must sign a contract of sale. This means that in order to bid, someone must do their due diligence first. This will cut down on the pool of buyers. In addition, there is no ability to negotiate the contract, simply "take it or leave it". This will also cut down on the pool of buyers.

In general, real Estate Auctions are very good for liquidating a pool of properties which were hard to sell, but in general not very good for getting the highest prices (see, for example, the sale of the units at Grosvenor House, 22 West 15th St, by Citibank).

30 - I think that it comes down to how you run the auction. I don't claim any knowledge of how a real estate auction is traditional run, but in an auction for a business, the seller gives extensive access and makes the contract negotiation part of the auction process. I would think that could work for real estate, but perhaps I'm not thinking of something.

TeamM, I was interested in the auction as I thought it would be cheaper. But it seems that due to diligence requirements and marketing time involved, it would not necessarily be cheaper. The only component of auction which seem to be missing from the current real estate sale process is for the buyers to gather at the same time and bid in open. This is effectively being done when "best and final" offer is being called for by the broker. Perhaps "best and final" could be replaced by open bidding but I think in "best and final" broker can tell a buyer - you need to increase x amount and you will get done - and get a better bid relative to what would be possible in open auction.

300 - I agree/understand. I think the relative price of the auction would depend in large part in how it is conducted, and I do think that there's a fair bit of legwork to do it right.

I also agree that absent a call for "best and final" buyers will not move on many properties in this market. Of course, that only works if the properties are priced in a way to motivate buyers to move, and I think that in the current market there are still a lot of mismatches between the expectations of buyers and sellers.

TeamM, I think people sell real estate in a stable or rising market when they need to sell. Most people do not think of alternative investment return as they may not deploy real estate equity into other investment or may not have a broad of choice of investments such as private equity etc.

TeamM-
Can you think of the extra time and expense that it would take on both sides to both perform due diligence and negotiate contracts of sale for each potential buyer? How many buyers would you lose if each one had to pay an attorney several thousand dollars to do the due diligence and negotiate a possible contract of sale even just to be able to bid on the property? And how much would a seller have to pay their attorney to negotiate a dozen or more potential contracts of sale before the auction?

I can tell you that as a buyer, I have been to thousands of property auctions and have never seen one where the buyer negotiates the terms of sale before the auction. I can also say that the reason for the auctions was mostly speed of sale and not high price.

It is important to remember that calling for "Best and Final" is a blind process as apposed to a true auction: no one really knows how many other bidders there are (or even if they really exist) or what their bids are. In a "best and final" situation, especially in a very tight market, it is easy to get into a situation where the highest offer is significantly higher than the next best offer because people are afraid of "losing out". this does not happen in a "live auction" situation. OTOH, you also don't get people who get caught up in the potential frenzy of a live auction and end up paying over what they thought their "top number" was going to be. In addition there is much less potential for collusion among bidders which can happen in live auctions with everyone in the same room:
https://www.justice.gov/atr/division-operations/division-update-2016/real-estate-foreclosure-auctions
https://www.justice.gov/archive/atr/public/press_releases/1998/1961.htm

30, You have a great point about extra cost of due diligence due to multiple buyers potentially having to perform it. Thank you.

As I've noted before, I'm not a real estate person. Large companies are generally sold through an auction-type process with the help of bankers, but perhaps there just isn't enough money in the RE process for homes in order to replicate those dynamics on a smaller scale...

https://www.brickunderground.com/sell/selling-an-apartment-by-auction

It's an interesting article. I would tend to prefer a process that lasts over several days, but has a definite end date. I think that there are a number of townhouses that have been lingering on the market that would benefit from this type of process. If it didn't get the price they were looking for then they could just decide not to sell and wait for a better market.

I think every one is waiting for a jailed Chinese Billionaire's wife who may pay up without regard to the price. You have to keep your property on the market if you want a buyer without regard to money.

http://nypost.com/2017/03/09/imprisoned-chinese-mogul-nabs-42m-pad-on-upper-east-side/

TeamM-
One big difference is that in the case of big companies being sold to other big companies, both sides of the transaction are professionals, whereas in selling homes to home buyers neither is.

30 - I hear you but ultimately it is up to the deal professionals in those transactions to facilitate and make the deal understandable and achievable. I just wonder whether the same could happen in real estate. As a potential buyer, I sit on the sidelines and wait for a variety of reasons (e.g., the time of the school year for my children, I tend to think that prices will drop in the segment I'm looking at, etc.) and there's nothing in the process to force a transaction in this market dynamic. Now a real estate broker might say this is an indication that the segment is simply overpriced because otherwise you'd see these properties moving (and I wouldn't be able to just sit on the sideline without fear of losing properties that might interest me), and that would be a fair comment, but I would think that auctions could help also facilitate the market activity.

I'll give an example where something akin to an auction was wisely used (even though it didn't result in a sale): 64 West 87th had sat on the market for a long time. Eventually they dropped the price down from ~$11.5mm to $7.5mm to get interest and asked that potential buyers put their best proposal by X date. That forced buyers to act - it looks like the owner pulled the property off the market, presumably to wait for a better market, and I think that makes a lot of sense from a seller's perspective.

I would think that 238 East 68th would be well-served to do something similar (a property that I would never buy but that I think is interesting to watch in the market). That house has been on the market since 2014. They've dropped the price numerous times and they seem to constantly hold open houses. It went into contract once and apparently didn't close. It seems like they've either priced it wrong or they aren't doing something to act as a catalyst to force buyers to act. I would think that an auction would a perfect mechanism for them - if it doesn't work then they could just pull it and rent it (or wait for a different market).

238 East 68th appears to be held by investors. So they have $3mm in it, plus the cost of the renovation, plus there's a $300K transaction that Streeteasy didn't pick up. Presumably they're paying property taxes and cleaning, and there's an opportunity cost of not being in equities, but even so, the total cost of holding is what, $5mm? Presumably a slower exit at a higher price is what works for them. I wouldn't expect an auction anytime soon.

Re: 64 West 87th:
Firstly, I would hardly call that an auction,
Secondly, the original poster asked " 'Why not do FSBO via auction? ' " - this was about as far away from that as you can get, and
Thirdly, wasn't this really just proof that this tactic DOESN'T work with this type of property?

re; 238 East 68th St:
I think it's sitting around sticking to the price is because there is nothing else to buy for the owners in the current market. If there was another property they needed the money for I'd think they would get rid of it more quickly. But with nothing else they want to do with the money why switch horses to something else they would have just as much trouble getting rid of? And as I mentioned in another thread, the returns on the money (excluding equities) are so low elsewhere they are probably thinking "why bother?".

"30 - I hear you but ultimately it is up to the deal professionals in those transactions to facilitate and make the deal understandable and achievable"
I think you are expecting the bling to lead the blind.

30, I think I see things through a different lens. Not saying I'm right but it's my perspective based upon investment/M&A activity largely outside of real estate.

- Agree that I am primarily talking about using a third party to do the auction, and I don't mean something at the auction block.

- I do consider 64 West 87th a success for the owner, because it served as a catalyst to see if the market would bear his/her goal. It didn't and so the owner pulled the property to wait for another market rather than letting it just sit there and get stale. When it is next listed, potential buyers will know that this seller won't just keeping dropping the price in perpetuity. I can see how people would see things differently, and there is some old adages in M&A that a busted auction can taint an asset, but I don't think that's the case if the Seller is truly willing to pull it back off the market to wait for different market conditions.

- I run the opportunity cost and cost of capital analysis differently, but perhaps that's probably because of my personal experience outside of real estate. If it is held by investors then the terms of the arrangement certainly matters - if there is a sponsor with LP backers, then the IRR clock keeps ticking. I have no idea what the arrangement is for those owners. I think you're probably right about the owners will do - I am talking about what I think they should do. I admit to also wanting to see activity in the market because I think it's more interesting when there are more datapoints to think through - that particular house is a very interesting datapoint for a variety of reasons (although there are some rather odd things about the house that could drag the value down such that it is a bit of an outlier - I just don't know).

I think one of the issues is that you assume Real estate operators run rationally. I've been invovled with a lot of them for a long time and you would probably be shocked at the way most of them make their decisions. We are seeing this not a lot in the retail sector where spaces are remaining vacant for YEARS rather than take what the market will currently transact act because someone else got a high number on some other space in the area.

Just this second encountered an example of this. A guy in my office represents an investor who buys pools of bad mortgages and forecloses. He has a listing from them which came on the market 2 weeks ago. He brought them an offer above the asking price, it's the only offer on the table, but they are rejecting it because they want more.

30 - I think part of the difference in our views is that you are saying what folks WILL do (and I think you're probably correct) v. what I think folks SHOULD do to optimize their situations.

Oh, I don't disagree with that. But if the goal is "succeeding" I think you have to base your actions based on what they will actually do. Remember the John Maynard Keynes quote:
"The market can stay irrational longer than you can stay solvent.”

Remember this group, they developed a fairly sophisticated system for live auctions;https://en.m.wikipedia.org/wiki/Bid_on_the_City

Many sellers have a difficult time with something new, even if they are less than happy with their current options. That said my company and a few others are bringing some new options to the table. I'm not trying to reinvent the wheel, just offer some options that are practical and will work, a focus on simplicity.

Many of my ideas have been shaped by conversations I have had on this forum. I've been a Streeteasy supporter from the beginning. Not many brokers cared for this site when I first discovered it around 2007 or 2008, to their credit they embraced the brave New world, rather than fight it.

The highest and best scenario only benefits the seller and is completely subjective. With co-ops it's about much more than the highest bid. I did participate in one in Brooklyn where the agent sent a running tally of all bids, terms offered in an email to all who were bidding. Bidders dropped out until one was left. Our clients actually won, were also very happy with the process and the transparency. I was skeptical at first, however wound up liking the process.

Keith Burkhardt
www.theburkhardtgroup.com

https://malcolmcarter.wordpress.com/2010/02/02/bid-on-the-city-auction-too-little-too-late/

I've missed Malcolm's blog. Interesting to see he's in Cambodia.

Maybe he had a Spalding Gray moment.