When the auction gavel isn't final

Editor's note: This article is reposted with permission by The Real Deal. Click here to view the original article.

By CATHARINE CURAN

NEW YORK -- When is an auction of residential real estate not really a sale to the highest bidder? The answer, it turns out, is: far more often than you might think.

With the high-profile auctions of luxury condos at the Locale in Greenpoint (Brooklyn) and Solaria in Riverdale (Bronx) in recent months, plus upstart auction firm Bid on the City's $1 starting bid sale in February in Manhattan, auction fever has been sweeping New York.

Hundreds of potential buyers have salivated at a chance to score a New York City home at a far-below-market price simply by placing a winning bid and closing a sale soon after.

Scratch the surface of recent residential real estate auctions in the New York metro area, however, and a far more complicated scenario emerges.

For many auctioneers in New York, these bids are serving mainly as starting points for negotiations that lead to prices far higher than the winning bids.

Developer Joseph Korff, for example, told The Real Deal he has been scoring prices as much as 40 percent higher than the high bids for apartments in the Solaria, after rejecting about half the high bids as too low. Korff had listed 54 units at auction.

High bidders are sometimes rejected if a "seller's reserve," or undisclosed price that bidders must meet, exists.

When bids fall short, the haggling begins.

"The auction is basically the catalyst," said Enzo Morabito, an executive vice president at Prudential Douglas Elliman who has been conducting auctions for nondistressed properties in the Hamptons. "An auction accelerates (interest) -- that's really what the whole thing is about."

In fact, sometimes the gap between the high bid and the final deal is so large that neither the price nor the property bears much resemblance to the auction results.

In one deal that Bid on the City ran, a bidder's roughly $200,000 offer fell far short of the $315,000 reserve on a one-bedroom apartment. Bid on the City, which launched last year, kept negotiating, and sold that buyer a more expensive apartment in the same building, according to Vlad Sapozhnikov, co-founder of Bid on the City.

"We have a reserve on each property and if we don't get the reserve, then the highest bid is treated as an offer, and we get into negotiation," said Sapozhnikov.

"And sometimes we close the deal, sometimes we don't."

In a similar fashion, Korff said he sold a three-bedroom apartment in the Solaria to a family that changed its mind after their auction offer was accepted on a two-bedroom in the same building. The larger apartment cost 30 percent more.

"This was a voluntary discussion," Korff insisted. "It's not a setup." ...CONTINUED

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