Going once, going twice . . .

Image : Piotr Szymczak

by Beata Socha

Auctioning is relatively uncommon in Poland. Usually it involves works of art or pedigree animals, such as horses. But real estate auctions? These are still predominantly associated with mortgage foreclosures and repossessions. Meanwhile, an increasing number of developers and individuals decide on this form of sale through auction houses.

Golden opportunity

Buying an auctioned apartment can be nothing short of a golden opportunity, provided you can keep your cool while bidding. Let’s consider one of hundreds of offers on a court receiver’s website. The asking price on a 56-sqm two-room apartment in Ursynów is set at PLN 290,000, which translates into a little over PLN 5,100 per sqm. Meanwhile, comparable apartments in the same area rarely sell below PLN 9,000 per sqm.

People who buy on foreclosure auctions are often speculative investors, looking to either flip the property quickly at a 10-15 percent profit, or hold on to it and resell when market conditions improve.

Naturally, there are some limitations to purchasing real estate through auctioning. You have to place a bond on the auction, so you need at least some front money. However, with the price on an auctioned apartment, say, 20-30 percent lower than on the regular market, you can always find someone interested.

Market forces at play

But why would an apartment owner with no looming foreclosure even consider selling his property through an auction? For individuals, this can be the quickest way of swapping a piece of real estate for cash, which is something to be considered given that the average time an apartment remains listed is three months, with many ads over a year old.

And there is also the advantage of the venue. With a real estate agency as the intermediary, the seller bides his time waiting to receive a single offer, while buyers have plenty of time to research, compare and negotiate. At some point you want to offload the property so badly that you are tempted to cut your losses and take whatever the buyer is offering. It is no wonder then that transaction prices are usually 12-20 percent below the asking price, according to
NBP data.

At an auction, the tables are turned, in a way. It is no longer one buyer browsing through thousands of offers, but rather several bidders sitting next to one another, all of whom came to buy the same piece of property. And the results can be staggering.


On the block

Przemysław Wojtysiak, vice-president of Emmerson Auction

Przemysław Wojtysiak, vice-president of Emmerson Auction

INTERVIEW: Przemysław Wojtysiak is vice-president of Emmerson Auction House, which is only one of two auction houses that deals in real estate.

WBJ Observer: What kind of properties do you sell at auctions?
Przemysław Wojtysiak: Real estate is a specific kind of product, because it is repetitive. We try to look for interesting, unique properties, for instance with one-of-a-kind floor plans and interior design.
Manor houses are unique by nature, but apartments usually are not. Our last auction was entirely based on developers’ offers.

What does a typical auction look like?
It all depends on the auction model, on how many properties are auctioned, on whether the property is unique in some way or if it’s a mass market property. Usually we invite individual people, but many auctions are open to the public.

There are between a few and several dozen people. They receive an auction catalog with all the available properties. The first step is a mock round of bidding, where we usually “auction” some famous piece of real estate. At the end there is a small gift to the highest bidder.

This is done to ease the tension in the room and to show people how to place their bids. Bidders are under a lot of pressure due to time constraints and the competition they face. Often they don’t know how to bid or are too stressed to even raise their paddles.

What happens next?
Usually the auctioneer follows the order in the catalog but he is not bound by it. If he sees that one type of property is particularly attractive, he may move similar items up the list. This allows bidders to immediately compare these offers and also reduces stress. Imagine that you just passed up on a property and then had to sit through 20 different ones to get another shot? That’s extremely stressful.
The auctioneer waits for bids or suggests them himself. The auction ends when there are no more bids and the hammer falls with the auctioneer saying “Sold!” Or if the bids were too low, he says, “Pass, the reservation price has not been reached.”

Does it happen that a person wins an auction and then realizes that they bid too high?
Yes, it happens. The time and place of the auction is supposed to make people decide in a matter of seconds instead of hours or days. They sometimes get carried away.

Can you purchase an auctioned apartment with a bank loan?
Yes. The auction house makes all documents available to the interested parties so they can check if their bank will finance the purchase.
It is somewhat reversed to what we see on the traditional market, where first you pick the property, sign a pre-sale agreement and then go to the bank to see if you can afford it.

Do people purchasing properties on auctions buy them for their own use or as an investment?
Currently, most people who buy apartments buy them for their own use. With the exception of restricted-access auctions which are addressed to funds, banks and other investors.
When investors buy apartments they usually do so at foreclosure auctions. Because their goal is different: to maximize profit, which is much easier at foreclosure auctions.

How are your auctions different from foreclosure auctions?
While an auction’s aim is to sell a property on profitable terms, a foreclosure auction aims at turning an asset into cash, marginalizing the profitability of the transaction.
A property seller is far better off selling it through a regular auction rather than through foreclosure, mainly because court receivers charge 15 percent of the selling price as execution costs, five times what an auction house charges.
Usually only about 20 percent of these properties find a buyer first time around, anyway. Most of them sell at the second auction at the minimum price, which is set at two-thirds of the market value.

How many auction houses deal with real estate?
Currently there are only two: Emmerson Dom Aukcyjny and Bydgoski Dom Aukcyjny.

This truly is a budding market then?
In Poland auctions are a popular form of sale only for works of art and pedigree animals. It didn’t use to be this way, though. Auctions used to be quite commonplace in Poland in the 1920s, but the 50 years of communism almost entirely eradicated them. Now Poles are learning what the Brits or Germans have known for years.

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