Auctioneers are famous for saying, “We get market value.” In other words, auctions prices are what property is worth.
Yet, some will say, “That [whatever] sold for $29,500 at that auction, but was worth much more.”
Less often, someone will say, “That [whatever] sold for $29,500 at that auction, and sold for much more than it was worth.”
Can something sell for more than it’s worth?
I am on the list of “approved appraisers” for our county probate court. As such, attorneys can request I appraise real property, and other times I’m appointed by the judge to be the appraiser.
One of our longtime attorney clients (we’ll call her Sharon) called and said she wanted me to be the appraiser for a particular property involved in an estate. She informed me once I appraised it, then she would have us sell it at public auction.
I made an appointment to view the property. Upon inspection, I reviewed similar sales which had occured in the same neighborhood in the last six months (sales comparison method.) My conclusion was that this home was worth about $150,000.
We filed our appraisal with Sharon’s office, and the auction was scheduled with a minimum bid of 2/3 of the appraised value ($100,000.) We expected many inquires and a final selling price, of course, in the $150,000 range.
Auction day arrived, and we had 12 registered bidders. After going over the terms and conditions, I received a bid of $100,000.
Successive bidding continued $105,000, $110,000, $115,000, $120,000, $125,000, $130,000, $140,000, $145,000, $150,000 …… $177,000, $178,000, $179,000, $180,000, $181,000.
The high bidder signed all the appropriate paperwork and we contacted our title company to begin final preparations for a closing. I emailed Sharon with the good news — we sold a home that by all accounts was properly appraised for $150,000 for $181,000.
So, what’s this property worth? There’s not an auctioneer on earth who wouldn’t say it’s worth $181,000. Willing buyer, willing seller … fair market value.
However, about 15 days after the auction, the buyer contacts me to tell me the home is not worth $181,000 but only $148,000. “Who says?” I asked. “My lender’s appraiser.” our buyer responded. “I can’t get the financing because — according to him — I’m paying too much for the home.” “I don’t have over $60,000 to put down.”
As a result, the buyer was ultimately unable to close. He lost his earnest money deposit, and the home was rescheduled for auction.
I was talking to Sharon on the phone about the new auction date when she asked me, “So, why does someone pay $30,000 more for a home than it’s worth? I mean, he would have had the same comparable market information that was available to everyone …”
“Right, Sharon, he did have,” I responded. “In fact, to augment your question, we had another bidder willing to pay $180,000 — so at least two bidders thought it was worth about $180.000.”
“So, I don’t get it,” Sharon continued. “They know what they can buy other similar homes for, and yet stand there and bid $30,000 more than this home is worth?”
“They did,” I replied. “I would submit the home is worth every bit of $180,000, but it’s only worth that if a buyer is willing and able to buy at that price. If they can’t close, I guess you could say they bid too much?”
“I’d say I’ve got a pretty persuasive auctioneer …” Sharon said. “I’d like to think so.” I said. In fact, there are many persuasive auctioneers out there; it’s particularly nice to have a client call you one.
Next time you hear that auctions don’t produce market value, and the answer is that they do … it’s worth mentioning that auctions sometimes exceed market value as well.
Mike Brandly, Auctioneer, CAI, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, Keller Williams Auctions and Goodwill Columbus Car Auction. He serves as Adjunct Faculty at Columbus State Community College, Executive Director of The Ohio Auction School and Faculty at the Certified Auctioneers Institute held at Indiana University.
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