Real Estate Auctions: Why Are Opportunities Falling Through?
Turki Ahmed Al-Osaimi
When a property doesn’t sell at auction, it’s rarely due to unclear reasons or a complicated market situation; essentially, it boils down to three key factors: the type of property and its appeal, the asking price, and the quality of marketing. When these three elements align, the auction is poised for success; when they fall short, failure becomes inevitable.
Not all plots of land are in demand, not all prices are attractive, and not all marketing campaigns reach their target audience. Take, for example, a plot of agricultural land that was professionally marketed but did not sell; perhaps the problem was the price, or perhaps the property itself lacked appeal to buyers. Sometimes the property is good and the price is attractive, but turnout is low because the marketing failed to effectively convey the opportunity to interested parties.
Auctions do not take place in a vacuum; there are always external factors that reshape market sentiment, such as changes in legislation—for example, decisions regarding fees on undeveloped land—all of which play a role in creating a sense of anticipation that affects buyers" behavior. What was fiercely bid on yesterday may be offered today at a lower price without generating the same enthusiasm.
Timing is crucial
At the heart of all this lies an important factor that is often overlooked: timing. Auctions are not time-neutral. Summer, for example, is naturally a busy season, whereas the months of Ramadan or the end of the Hijri year see a noticeable lull. In some cases, buyer interest may drop by as much as 40% simply because the auction was held at an inopportune time.
When comparing online auctions to in-person auctions, we also find a vast difference between them. In the former, announcing the opening price encourages competition and increases the likelihood of a successful bid. In in-person auctions, however, the absence of an announced opening price has a negative impact on buyer turnout, especially among those without prior auction experience.
Given the large number of auctions, the sheer volume has become a challenge in itself. Approximately 98 % real estate auctions are overseen by the Enforcement and Liquidation Center (»Infa’h"), at a rate of up to 50 auctions per week. This momentum, combined with an execution cycle that does not exceed 21 business days, creates confusion among some bidders and makes it difficult for them to track and carefully analyze opportunities.
A Cultural Gap in Understanding the Auction Mechanism
There is also a cultural gap in understanding the auction mechanism, which is particularly evident in less densely populated provinces and regions. Some believe that winning an auction is determined solely by the highest bid, without considering that the property is appraised by certified appraisers, which creates a misunderstanding that deters a large segment of the population from participating.
But the most significant challenge lies in limited access to financing. Today, the vast majority of auction participants are »cash buyers," while buyers who rely on bank financing remain on the sidelines. The reason? Bank requirements, short payment terms—which sometimes do not exceed three days—and the lack of financing models tailored to this type of transaction.
Revisiting the Financing Environment
If we want real estate auctions to become a genuine tool for expanding home ownership, we must reevaluate the financing environment surrounding them. There are simple yet effective steps: requiring buyers to provide a document demonstrating their financial capacity before entering the auction; providing a flexible and rapid financing mechanism tailored to the specific nature of auctions; prioritizing these transactions among banks and financing companies; and streamlining procedures as much as possible.
All we need is precise guidance and some flexibility in the system. Real estate auctions are not merely a means of liquidating assets; they can also serve as a strategic avenue to empower individuals, stimulate the market, and ensure equitable distribution of real estate. The key is to manage them properly and recalibrate their pace to align with market shifts and the aspirations of participants.
CEO of Tatma Real Estate
