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Auction houses jump into a softening market
Proponents say bidding process moves properties faster and closer to their true value in a slowing market

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Friday, December 14, 2018 – Page H3

VANCOUVER -- Aurelia Isidoro, who lives in New Jersey, was happy when her real estate auction firm decided to move into the Vancouver market. She'd visited the B.C. Lower Mainland in the summer and wanted to return.

For the past three weeks, she's been showing a house built in 1955, designed by architect Kenneth McKinley at 6137 Collingwood Place, on a cul-de-sac in the Dunbar-Southlands neighbourhood. The street, with its big garden lots, feels frozen in time - most of the homes are of the era, including the mid-century modern house where the Tim Burton movie Big Eyes was shot.

Ms. Isidoro is not licensed to sell properties in British Columbia. She is the project sales manager for New York's Concierge Auctions, a company that rose from the ashes of the U.S. economic downturn of 2008. Its founders were based in Florida at the time, where the market had been decimated. Through auction, they discovered they could move properties efficiently.

"When you have a correcting market like you have in Vancouver right now, people don't know what their homes are worth," Ms.

Isidoro says. "The competition of the auction will bring the true value of the home, and at the end of the day in correcting markets, we set the bar."

The four-bedroom, 2,900square-foot house is their official entry into the Vancouver market.

Early bidding for the Collingwood house starts on Dec. 14 and goes live in Hong Kong on Dec. 20, targeting Chinese real estate investors, according to the company's news release. That day, potential buyers in Hong Kong will be shown a portfolio of properties from various cities, including the house on Collingwood Place, and they will make their bids. The house is "without reserve," which means there is no minimum price set. Others can place bids online.

Ms. Isidoro has seen good traffic come through the house in her time in Vancouver. Many people are interested in the City of Vancouver's plan to allow duplex construction on single-family lots.

The house's appeal is also its proximity to private schools and the University of British Columbia.

"I'm seeing foreign buyers and locals," Ms. Isidoro says. "A good majority of it is investors, because they see the opportunity for a great piece of land in a really great neighbourhood in a great location here in Vancouver. Absolutely, we are seeing a lot of interest based in development potential.

The [duplex zoning] is in the works or you can build a home up to 8,000 square feet, based on the size of the lot - and there is the possibility for neighbours, if they are willing, to go in it for land assembly."

A news release clarifies the 11,638-square-foot lot's development potential: "Recently enhanced zoning provides a new opportunity to build a massive duplex or, as before, a single-family mansion on the property, either up to approximately 8,147 square feet."

Concierge always works with listing agents who know the local market. Also, only licensed B.C.

realtors can sell properties in the province. Mark Wiens is the listing agent for the Vancouver house, but he couldn't be interviewed because he is in China working on the marketing.

In a phone interview, Calgarybased Murray Lange, Concierge's business development consultant for B.C. and Alberta, said the auction process finds the true market value because it brings many bidders to the table owing to the time pressure and global marketing. In the traditional listing process, the agent lists for an agreed-upon price, which, in the current slow market, will be reduced repeatedly until a buyer is found.

The owners of Collingwood Place purchased the house in June, 2014, for $1.91-million, according to the title documents, which are provided with the auction materials. They tried selling the house in August, 2017, for $4.68-million and relisted three more times, including a listing in October, 2018, for $3.67-million.

However, the Vancouver market has slowed considerably in the past year.

When it goes to auction, the company will give the sellers what they project to be the range of opening bids.

"In this case, we expect to see an opening bid of between [$1.5million] and $2.5-million," Mr.

Lange says. "That's what we think will happen. We could get an opening bid of $500,000. We could get an opening bid of $3million. It's just a projection."

Generally, the houses that go to auction have been sitting on the market for several months, he says.

"That would be typical," Mr.

Lange says. "You have people in the market trying to put out a list price that will attract a buyer, but it doesn't. But if you keep going through price reductions you are chasing the market down, you are not finding the market. You are negotiating with yourself because nobody is on the other side of the table. "Auction eliminates all that, and all of a sudden, we bring buyers to you and they tell you through the opening bid process what they think your property is worth.

"You don't want to languish in a market and keep going through price reductions for awhile, because you are just destroying the value of your property."

The buyer on the Collingwood house will pay a 12-per-cent premium on the price, which is Concierge's fee. They also pay any transfer fees. The company uses incentives to encourage buyers to make opening bids that entitle them to a reduction on the final purchase price. The reduction amount in this case is 12 per cent of the opening bid. So, if they make an opening bid of $2-million and win the house for $3-million, they get a reduction of $240,000. Such an incentive to make a decent opening bid takes some of the risk away for the seller, who can always back out before it goes to live auction.

"I've seen properties this year trade at or above list, and I've seen properties trade for a fraction of list," Mr. Lange says. "A lot of that has to do with the fact that list price is not based on science or fact; it's often aspirational."

Realtor Ian Watt says that auctions are "a desperate move," and it still comes down to a fair market price, whether auctioned or sold through the Multiple Listing Service.

"The fact is, the house is only worth what someone is willing to pay," he says. "The problem is that Vancouver homeowners have it in their heads that they are richer than they are. ... Most realtors are too afraid to tell them what it's really worth so they tell them what they want to hear.

"In an upward market, this may work. But in a downward market, this is a disaster. They list the house and it sits, and the owners lose more and more money.

The fact is, that any home over $2million will only sell if there is a deal to be had. Houses in Vancouver are sitting for one simple reason: They are overpriced."

Concierge isn't the first to bring auction to Vancouver's property market. Theo Birkner is managing broker and principal of the Canadian division of Harcourts, a New Zealand firm. Mr. Birkner and partner Greg Paddy started the Vancouver branch in 2017.

However, they are not an auction company. They are licensed realtors who also sell homes the traditional way, as well as through live auction. Mr. Birkner says about half of their listings sell prior to auction, and about one-quarter sell at auction. Others sell after auction. Unlike Concierge, they place an undisclosed reserve price on the property and there is not a buyer's premium. The company collects its fee from the seller, which is the standard way in Canada.

Harcourts, which got started in 1880, has expanded throughout North America in the past few years. Although they were the first to enter Vancouver, Mr.Birkner welcomes the new competition because it gives the auction process greater exposure.

"In the last six years, we've been growing like a weed in the Western United States, and now into Canada, with our first office in Canada being here in Vancouver," he says.

"Unlike Concierge, we are not an auction house - we are a real estate company," Mr. Birkner says.

"We are not trying to rewrite the way real estate is done, not trying to get rid of the traditional sales method. We are offering an alternative."

People living in Australia and New Zealand are already familiar with the auction process. On a given Saturday, the auctioneer stands in front of the house for sale, surrounded by looky-loos and bidders and sells the property on the spot. Unlike the Canadian process, everybody knows what everybody else is bidding. The owner has the option of accepting or rejecting the final bid.

Mr. Birkner says that auction is used about 60 per cent of the time in Australia and New Zealand.

The key difference, however, is that Australians have more access to information than Canadians, such as the sales history of a property. In B.C., realtors have access to a database called Paragon, where they can look up each sales transaction for a property and title information. Because such information is publicly available in Australia, it means they don't need buying agents. The secrecy of the Canadian system contributed to unethical behaviour in the Lower Mainland market, such as the problem of "shadow flipping," in which a realtor could quietly reassign the sale of a property to another buyer, for a higher amount, without the seller's knowledge.

The province introduced measures to prohibit the practice, but assignment sales continue in the presale condo market.

Harcourts does not auction homes online to the global marketplace, although remote buyers can purchase by proxy.

"The online scenario commoditizes things a little bit," Mr. Birkner says.

He sees "massive opportunity" for auction now that the Lower Mainland's housing market has gone soft. He describes an auction for a waterfront house they sold in Upper Lonsdale in North Vancouver about a year ago. Instead of putting it on the MLS, it went to auction without a price. They showed the house for several weeks to about 85 groups. Interested parties were provided with any relevant information and did their due diligence, including inspections. On auction day, a group of about 40 people gathered around the Harcourts auctioneer, who flew up from the United States. The bidding started at $1million and sold within minutes for $2.775-million. The crowd broke into applause. A bottle of Moët was uncorked.

"It was so exciting," Mr. Birkner says. "In traditional real estate, it usually goes that at 11:30 at night you get a text from a realtor saying, 'Congrats, they removed subjects.' "But this was an event."

Associated Graphic

The house at 6137 Collingwood Place, in Vancouver's Dunbar-Southlands neighbourhood, represents New York-based Concierge Auctions' official entry into the Vancouver market. Concierge project sales manager Aurelia Isidoro, right, says many people to whom she has shown the house are interested in the city's plan to allow duplex construction on single-family lots.


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