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Gallery Auction: One Peril We Didn’t Expect

By katrina March 4, 2011

When Urban Living posted about the perils of condo auctions on Wednesday, it never entered our heads that the auction might not happen. And yet here we are with one day to go, the Gallery auction canceled, and converted to a Buy-Now One Day Sales Event.

From this surprising news, there’s only one thing we can say for sure: The Gallery still has remaining inventory to sell. What we can’t say with any certainty is what truly compelled Accelerated Marketing Partner (AMP) and Gallery Condominium LLC to switch formats at the final hour. A move that has the potential to alienate buyers in tomorrow’s sales because – no matter how off-balance and knocked around everyone is by the news – the registered, prospective buyers must be feeling it 10 times more.

To help shed some light on the why, we turned to Paul Thomas, partner at Seattle-based Northwest Auctions, for his thoughts (we asked about the more obvious motivations, and he answered).

Could this be a bait-and-switch?

I highly doubt that this is some sort of pre-meditated bait-and-switch where they get folks to pay attention through auction marketing, and then ask them to pay retail in a one-day event instead. The risks are just too high that it will backfire.

Besides, it is not uncommon to offer a Buy-Now component throughout the auction marketing campaign where an interested party can purchase the unit they want at the posted Buy It Now price to avoid the risk of not winning it at auction. Northwest Auctions has done this with good success and buyers appreciated the option. The unfortunate thing is that a Buy-Now option was not part of the marketing of this auction, which can only serve to surprise when the game changes completely, 24 hours before the auction.

Did the Gallery lose FHA approval?

I thought of that as a possibility because if they lost FHA approval for some reason, AMP would have to void any auction registrations that were based on the seller’s assurance that the building was FHA-approved. However, I checked, and the FHA site still lists Gallery as FHA-approved, as of early January.

What about not enough registered, qualified participants?

The e-mail about the cancelation does point in that direction. Part of the change is that they’re now offering a 7-day financing contingency to allow more buyers to obtain financing approval. However, there is no reason they couldn’t have announced a modification of the terms on auction day (or sent out an e-mail beforehand) and continued with the original auction format. AMP would have saved themselves a lot of trouble (not to mention avoiding forfeiture of the $5-10K ballroom cost and a whole lot of other auction day expenses).

Was expected turnout just too low then?

My gut instinct is that the pre-auction registrations were far below projections and either the auction company or the project’s construction lender (or both) didn’t like the numbers. Early registrations are usually about 60-70% of the total registrations that will come in, so the auction company can predict with some certainty up to a week out what total turnout will look like.

The one-day event will make it much easier to ‘hide’ a dismal auction turnout by cycling folks through an open house, then keeping them isolated from each other while the closing team does their best to sell units individually – as it appears they’ll do tomorrow. But to make the decision to change formats at the very last second has a number of serious repercussions, any one of which could affect Gallery’s continuing sales efforts.

As for effect on sales, we’ll just have to wait and see what come out of tomorrow’s event. For now, it appears AMP and the Gallery Condominiums LLC are betting that any disruption caused by the sudden switch is not enough to deter registered participants from taking a chance at a great deal. Ultimately, that chance still exists because (as AMP stated in their e-mail) for one day only the remaining inventory is being offered at:

…prices far less than previously publicized, including sales from our prior auction. This represents the lowest prices ever made available in Gallery’s history.

23 responses to “Gallery Auction: One Peril We Didn’t Expect”

Amir says:

March 5, 2011 at 8:24 am

As a registered bidder, I was baffled but not necessarily disappointed by this turn of events. It sounds like they are panicking, and I don’t think they’ll risk having a lot of unsold inventory at the end of the event by not pricing the units aggressively.
Henry says:

March 5, 2011 at 11:07 am

As a current resident at Gallery, I can tell you that there seemed to be far less prospective buyers touring the building prior to this event than prior to the last auction.
Amir says:

March 5, 2011 at 6:33 pm

This is going to be a spectacle if they don’t get their act together. I just came back from the sales center because the rep I talked to yesterday said they’d be giving out the “first come first served” bidder numbers when the sales center opened … but when I went there this morning I was told that would be done at 2pm, and no price list till 2:30pm. Nobody there knew exactly how it’s all going to work. I was the second person there, and a couple of other bidders that got there at around the same time were starting to line up outside for their number already … but after listening to one of the salesperson’s views on the market, I didn’t have much faith that the Buy Now pricing would be worth waiting in line for four hours … I think at best they will be priced at fair market value.

It was also interesting to hear them explain why they changed the format – because people get intimidated by the auction format … except apparently their last auction, which their email referred to as the “previous, very successful auction event.” And apparently they’ve received a very favorable response to the change … guess I’ll find out at 2pm if it’s true.
mattgoyer says:

March 5, 2011 at 6:53 pm

Thanks for the update Amir. Keep us posted on how the afternoon goes.
Amir says:

March 5, 2011 at 9:08 pm

Just got back to the sales center after taking care of some errands … I’ve lost four spots in line I think, but conditions have improved – we are now waiting in the residents’ lounge with some nice snacks, instead of outside. Word is that we’re going to have to line back up outside as 2pm approaches though, presumably in order of arrival as dictated by the honor code since nobody is recording the order..
Amir says:

March 5, 2011 at 9:56 pm

We are now back at the lounge, after having lined up again outside to receive our bidder number. Three reps gave us three different answers on how the numbers would be assigned (unfortunately alphabetical order wasn’t one of them), then a fourth person came and told us they didn’t really need us to line up outside again and sent us back up to the lounge. One of the reps said they actually have been keeping track of the order in which people arrived … fingers crossed.
Amir says:

March 5, 2011 at 11:16 pm

It turns out they did keep track of the order, based on which they sent groups of five bidders with five different contract-writers to discuss the purchases.

The ones I was interested in were being offered at about 39% higher than their minimum bids and not even close to my target price range, even after accounting for the buyer’s bonus. That concluded my experience, it will be interesting to see how it turns out. I think there are much better deals on the MLS right now and would be surprised if Gallery sells more than half of the units on their (non)auction list.
David says:

March 6, 2011 at 2:54 am

I attended the event today, and I feel extremely angry and misled by this entire process. After weeks of viewing and prequalifying for these units, they cancelled the auction with a single day’s notice. The entire day was a wreck as some people had been waiting since 9am under the first come first serve policy not knowing what prices were going to be offered to them. They whisked people in and out of meeting rooms and even had the registered participants waiting outside for a period of time. The representatives that finally came in to explain the new guidelines to everyone appeared very nervous. The process was that they took down the order people arrived, and would take participants up in groups of 5 and agents would go over the fixed prices of the units they were interested in. If a unit was sold, no one else would have the opportunity to buy that particular unit. In the meantime, the other participants had to wait in a room until their names were called for the next group, still unaware of what the fixed prices were. The original minimum bids of $185,000 were now at a fixed price of $260,000. The originally minimum bid of $225,000 were now at $310,00-400,000. We would have to wait until our names were called to figure this out though. In the end, roughly 30 registered participants showed to this event with 24 units up for sale. This gives you an idea why the auction was cancelled. If they had kept it an auction, many of the units probably would have sold at or close to minimum bid price. These fixed prices, I assume were based on the mandatory prequalified loan infoation we had to provide, along with the individual unit number interest information we had to provide telling them which condos we wanted to buy. I feel that the entire thong was misleading and if I had known these were fixed prices, I wouldn’t have spent all of that time getting everything in order for this so called auction. This was a horrible experience and I feel sorry for anyone who was a part of it.
Art says:

March 6, 2011 at 5:00 pm

This is amazing. They advertised a “minimum bid” auction with no hidden reserves and then when it looked like they might only get minimum bids, they canceled the auction. People were pre-qualified for the minimum bid auction but then were asked to purchase on completely different terms. I’m surprised any lender is still willing to finance.
Amir says:

March 6, 2011 at 5:34 pm

Wow just 30?? It was hard for me to tell how many actual bidders there were, with family and agents mixed in. And the guy actually had the nerve to say they had priced the units below what they thought they’d get if they had done an auction … I was (naively) giving them the benefit of the doubt till I heard that nonsensical statement.
be says:

March 7, 2011 at 4:13 pm

At least one unit sold … saw the agent escorting out a young Chinese couple out the door with a gift basket.
Dave Kinkade says:

March 7, 2011 at 5:15 pm

What a train wreck! I’d love to know what really caused the change in the eleventh hour. It probably isn’t bait and switch but it is undeniably tacky to generate all the interest with a ‘winner take all’ auction and then change the terms and hope people wouldn’t notice or care enough.
David says:

March 8, 2011 at 6:37 pm

Although it may not have been planned to be a bait and switch, it still ended up in the same result after gaining people’s interest and denying them what was promised. What was promised was at least the opportunity to purchase units at the minimum bid prices. I have been speaking to some people in the industry and it might fall under false advertisement since they still sold condos at the higher fixed prices and did not give participants the opportunity that was promised leading up to the event. I think that it is worth reporting to the attorney general or maybe pursuing some sort of civil lawsuit.
Jeff Parsons says:

March 8, 2011 at 7:54 pm

Gallery Condominiums LLC and Accelerated Marketing Partners sent out another email blast today, trumpeting their “SUCCESSFUL ONE-DAY SALE EVENT” (but with no details on how many of the 25 homes on their faux auction list were sold or what’s still available). The new announcement says “LIMITED TIME OFFER” and “OPPORTUNITY KNOCKS TWICE!” Anyone up for another opportunity to be lied to and treated like dirt? ;-)
Dave Kinkade says:

March 8, 2011 at 8:23 pm

It definitely warrants a closer look by the authorities, David. That might help to give investors some confidence that everyone is supposed to play by the rules. Think of all the wasted time and possibly the lost opportunities to purchase other investment properties these investors suffered! Perhaps worse than the investors were the other sellers in the market that lost the opportunity to sell their distressed property. Not cool!
Dave Kinkade says:

March 8, 2011 at 8:26 pm

Jeff, nothing says MEA CULPA like “OPPORTUNITY KNOCKS TWICE!” I seriously doubt all the investors thought of the day as a successful event.
David says:

March 8, 2011 at 9:46 pm

The “LIMITED TIME OFFER” is the same offer as the first lie they told us. A real estate agent that I am working with went down there today to check the prices, and they are exactly the same quotes as they were on Saturday. I am filing a complaint to the Washington State Office of the Attorney General on the matter. It just seems like they have to be violating some sort of business regulations by doing all of this.
Amir says:

March 8, 2011 at 10:36 pm

I wonder if privacy could also be a legal concern … “invasion of privacy” is probably too strong a phrase … but I think it’s definitely possible that they started planning the switch a day or two earlier than they announced it, in which case the auction bidders they signed up in that window may have submitted their information for a different purpose (i.e. an auction) than what it was ultimately used for (i.e. potentially to determine how to assign fixed prices).
Amir says:

March 8, 2011 at 10:36 pm

I wonder if privacy could also be a legal concern … “invasion of privacy” is probably too strong a phrase … but I think it’s definitely possible that they started planning the switch a day or two earlier than they announced it, in which case the auction bidders they signed up in that window may have submitted their information for a different purpose (i.e. an auction) than what it was ultimately used for (i.e. potentially to determine how to assign fixed prices).
Amir says:

March 8, 2011 at 10:54 pm

It didn’t sound so successful when they called me the next day to report that three out of the four units I had indicated interest in did not sell at the event (and to check if I was still interested in them)
Art says:

March 9, 2011 at 2:14 am

All you guys are on the right track. They advertised one thing and then yanked it at the last minute. Many people lost time and perhaps money because of their fraud–and that’s what it is. I also got the “opportunity knocks twice” e-mail today and I’d be shocked that anybody would consider doing business with them. Their “minimum bid” auction had hidden reserves, something they said it did not. I’m glad I decided not to participate. What will they do now if they can’t sell the remaining units? They can’t go back to an auction.
xtina says:

March 9, 2011 at 4:57 am

8 units were sold on auction day.
xtina says:

March 9, 2011 at 4:57 am

8 units were sold on auction day.

Gallery Auction: One Peril We Didn’t Expect

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