What's the fastest growing niche in real estate, one that's seen an increase in residential sales volume of 48 percent in the past 60 months?
The answer is auctions, they're booming while just about everything else in commercial and multifamily is flat or declining.
Last year alone, $59 billion was sold in private live-auctions, according to the industry's trade group, the National Association of Auctioneers. This year, with commercial real estate in a free-fall in some urban areas, auction volume is expected to be even higher.
But why should owners of investment property give serious consideration to auctions? Real Estate-Realtor Times talked with several key leaders in the auction field about that last week.
No surprise, of course, that they are strong proponents of the auction method of marketing income real estate, and especially distressed properties where buyers appear to be few … or they're all vultures.
Alan Kravets, president of Chicago-based Sheldon Good & Co., one of the largest real estate auction firms in the U.S., says auctions are most effective during accelerating markets, like we had during the boom years for both residential and commercial properties, and during decelerating markets, which is what we have now.
In an accelerating environment, live auctions of investment property where all the due-diligence is available to fully-vetted, competitive bidders gathered in a single room, can push prices far beyond what the seller imagined was possible.
In decelerating markets, on the other hand, Kravets argues that “you use auctions to cut your losses. You catch the falling knife, so to speak” -- limit your carrying costs immediately, and get out -- usually at a higher net return than you'd have gotten by leaving the property dangling on the market for months.
Chris Longley, deputy executive director of the National Auctioneers Association, says live auctions have become key elements of the 2009 distressed property marketplace, and are being used “to quickly establish true market values in environments where people aren't really sure what the values are. “
Banks increasingly are using auctions as loss-mitigation tools. For example, a lender might tell a financially- troubled developer with a partially-sold-out condo project that also has retail square footage: Look, we need to raise cash fast, so we will put out the 25 remaining condo units for auction. We'll work with you on the retail space, which we think can be turned around over time and be viable.
Bottom line: Consider adding auctions to your strategic game plan if you need to sell into a down market. They're not a panacea. But they work.