Fabian has been interested in buying a home in New York City. The situation is that for all living memory, buying a home is usually less expensive than renting in New York City because monthly payments are comparable and housing prices have gone up every year. Apartments in New York that are near transit might rent for something like 2500-3500 a month if they can bring a person into nice places in Manhattan in 20 minutes. To own a one-bedroom apartment in a desirable location might cost $600-800,000 at the lower end.
For some months Fabian has been talking about a housing auction. The situation is that he had a friend who lived in Manhattan in a housing cooperative in a nice location. There was someone in this co-op who was defaulting on the terms of their stay, and their apartment was about to go for auction. The inside information was that the former occupant was a crazy hoarder, and the apartment was unlivable. After the apartment was sold, several tons of garbage would have to be removed and then the walls, floor, and ceiling of the place would need to be replaced. No one was allowed to see the apartment before the auction and people interested in the property were invited to imagine the worst they could but even still to expect to be surprised.
Fabian wanted this apartment. It was a nice fantasy. The apartment was in an old building and was a modest room when it was constructed, but now was in a patch of earth that made it one of the most desirable places to live anywhere. The promise of the auction was that this fantastically luxurious location was going for auction under appalling conditions that most developers would not tolerate, but somehow, because of the nature of co-ops, a non-developer who sincerely wanted to join the community of the co-op for their own sake could get some kind of social concession to move in to the place if only they would tolerate cleaning the mess and being human about the experience. Whatever the case, the auction was happening, and Fabian wanted to bid on it, and I joined him for the experience.
The auction announcement said that the auction would be held in a rotunda of a courthouse at the Brooklyn Bridge – City Hall subway stop. The advertisement said that anyone who wanted to participate should bring cashier’s checks equal to 10% of their bids to this open public place and that the auction would be managed in the courthouse. I did not know what a public housing auction was, or how it worked. In this case, there was a busy courthouse and during the day among all the foot traffic a group of about 20 people gathered in the middle of everything. At the appointed time, two real estate lawyers came, and they took questions and led the auction.
So far as I could tell, at least 5-10 people there only came to see if they could buy the apartment for about 30% of market value. I wondered if that ever worked. There were some more serious participants who might have had ties to investors, and they bid something like 60% of what a room like that would be worth. Everyone knew the market value of a normal apartment in the area. What was left to be decided was how much of a discount in the price there would be to clean the mountain of garbage inside. The presumption was that the mess would cost 100-300,000 to clean. The mess belonged to one little old lady, and the entire experience was strange to me because I was seeing all of these bids around and everyone was afraid of this horrible mess that this elderly woman had brought into her home and like everyone else, I was wondering how bad it could be in a modest family apartment.
Fabian made bids to the limit that he planned, going up to a huge sum that was absolutely crazy for a 800 square foot apartment or whatever it was. The bidding went forward with an investor bidding against a recently married couple moving into New York. The investor came to a round number, then the couple bid $5,000 more, and then the bidding stopped. The person who “wins” an auction is the person willing to pay more for something than anyone else, and to the extent that auctions can be won, this couple won an apartment. They paid a huge sum of money for it but also got a big discount on the place. I think no one present was certain that the mess inside could be cleaned for the difference between the market value of the property and what they bid, but whatever the case, they now owned one of the most envied apartments in the world.
All around the auction other people in the courthouse went about their business. I suppose these kinds of auctions happen several times a day in the lobbies and public spaces of courthouses.