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Need to sell a condo quickly? Try an auction

As the nation's residential real estate market cools down, condo auctions are heating up. A penthouse in Denver's Cheesman Park that had been languishing on the market for two years was recently auctioned off in less than 5 minutes for $1.935 million.

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According to the National Auctioneers Association, residential real estate auctions represent the fastest growing sector of the auction industry. The number of residential auctions was up by 8.4 percent in 2005 and another 4.4 percent in the first half of this year.

Across the country, developers and owners are opting to hire professional auction houses to sell residential condominiums rather than wait indefinitely for them to sell by traditional means. There is good reason for condo owners to seek alternatives. While sales of single family homes dipped 1.6 percent in September, condo and cooperative housing sales dropped 3.2 percent, according to figures just released from the National Association of Realtors, signaling that the condo market is lagging other types of housing in a recovery.

In a changing market where last year's prices might no longer make sense, auctioneers say public auctions can determine today's true market value. Buyers appreciate the chance to see what others are willing to pay -- and you never know when you might be able to snap up a real bargain.

The trend has even prompted one online condo listing site to promote a cable TV show featuring live, real estate auctions, but buyers need to beware of a lot more than getting carried away by auction frenzy. Sales are final, and experts warn that bidders should find out in advance exactly what they're getting into.

The seller's edge
"An auction is a great way to avoid long-term carrying costs on a property," says Scott Kirk, senior marketing consultant with Grand Estates Auction Co. The company, based in Charlotte, N.C., specializes in luxury residences.

"The sellers know when the property will be sold," he says, "so they have an end date, and they can set a reserve price and feel comfortable that they will not be forced to sell below that."

About that reserve price -- sellers should be sure they would be willing to accept it as the final sales price, says Alan D. Wallace, a real estate attorney in Sherman Oaks, Calif. Wallace is a former auctioneer who often serves as an expert witness in real estate auction disputes.

"If a condo is worth $200,000," Wallace says, "many auctioneers will tell the seller he has to set a minimum bid of $130,000 in order to get enough people to come. Theoretically, in the auction frenzy it will be bid up to a price much higher than that. But, it could end up selling for a lot less than the owner thinks it's worth."

An alternative to a reserve auction is an absolute auction. In that scenario, the property simply goes to the highest bidder, regardless of price. The absolute auction obviously exposes a seller to more risk, but from a buyer's perspective, the tantalizing possibility of getting a really good deal can be irresistible.

That's why Annette Elms, owner of Jupiter, Fla.-based Christenson-Elms Auction Group, says she often requires clients selling multiple units to offer at least some of them on absolute terms.

"The majority of our clients are builders and developers of high-end properties," she says. Some developers may want to auction off an entire project; others want to close out one phase of a project or put just a few units on the block. Some may be offering a mixed bag of condos, homes and empty lots.

 
 
Next: "The whole basis of a successful sale is competitive bidding."
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