By an auction:
The starting prices ( see the auction here) underscore the light-speed leaps that rents in the city have taken because of that demand.
Bidding on the one-bedroom penthouse units begins at $5,300 per month (nope, not a typo). Minimum starting bids for the two-bedroom units range from $5,600 a month to $9,000 a month (still not a typo, I double-checked).
The minimum bid for a three-bedroom unit is between $8,000 a month to $10,000 a month (people, I have professional editors. These figures are real. See for yourself!)
HT: Burch
I really thought this was a typo, until I reviewed the Element Penthouse Auction website, and realized the clients they are catering to. In my opinion, I think these prices are extremely reasonable when it comes to a newly development penthouse. There are a lot of wealthy individuals leaving in Nashville, Tennessee, because it is the hometown of Country Music. These stars would love to lease/rent one of the 14 luxurious penthouses, for an extended amount of time. The one bedroom, known as Penthouse 4, is extremely spacious with 1622 square feet, which is the same size of my 4 bedroom house. The company states the 1 bedroom bids start at $5,300.00, but you should be prepared to pay 7,950 monthly, which equals $95,400.00 a year. The two bedroom/penthouse 1 is 2107 square feet, with a starting bid of 6,500 monthly and be prepared to pay 9750 monthly, which equals= $117,000. Again this is only for the rich and famous. I really think it is awesome that you get to bid online, because the prices could be lower, than you thought. Therefore if no one bids 500.00 higher than you, you could actually pay a less expense price. These prices are extremely inexpensive, compared to the prices of penthouses in LA. Jay Z and Beyoncé just rented a home in Los Angeles for 45 million a year. Which I think is extremely insane. I really like the option of bidding on a nice penthouse.
ReplyDeleteWinning this auction is typical of the winner's curse. Winning the auction automatically means that you paid too much. Bidding based on demand and scarcity is driving up the price of housing. What is the actual value of the apartment and what price are the loser willing to pay. This perception or idea that the actual value is less than what the winner is willing to pay will help diminish the winner's curse. Participating in a common value auction will help the consumer, and help control costs. The common value auction will provide everyone with equal information and an estimate on what the cost is, but individuals will be able to bid without the knowledge of what the competition is bidding. Considering the common-value auction is a type of adverse selection, the bidder needs to be cautious. The highest winning bid will only be correct if it is a true representation of the highest value of the property.
ReplyDeleteIt was interesting to see how the auction worked at Element Penthouse. I think that auctions are also about the fine print. When just looking at the front page with the penthouses that are available, it states that in order to secure a penthouse, the bidder must be willing to pay $7,950 per month. One of the current auctions is at $5,800 right now but does that mean that the bidder is going to have to additional money in fees. This is where is makes me wonder about the fine print that not everyone sees. The other concern I have it, what happens if the bid go over the $7,950? Does Element stop the auction once they reach the $7,950 bid?
ReplyDeleteThese prices are over the top. The rate at which Nashville is making its presence known as an up and coming city leads us into the direction that there is certainly demand for these type of living arrangements but at the same time the only one winning in this game is the owner/seller. The hype surrounding the city and the penthouses themselves is one thing but the consumer is in a losing situation when it comes to these type of common value auctions. Bidding like this more based on the value buyers place on intangible things such as location and reputation and these values will be different based on the consumer. Whoever values those things the highest will “win” the bid but will overpay for the property. The cost to build, rent, and manage these penthouses will not be significantly different than other housing in the area making this type of auction a true winners curse.
ReplyDeleteI make a living managing property, so this doesn’t surprise me especially in prime real estate areas. NYC for example, in the best areas, this would be considered a good deal for the bidder. A city that has a thriving economy, allows the suppliers of housing to have greater power. Therefore, they can charge higher prices and capture more of the industries value. This attracted other investors to look for ways to earn an economic profit. They found it in garage parking, for it trends with housing prices. Spaces are in such high demand that eight people are on a waiting list to buy a parking spots, the starting bid is $225,000 (Toy, 2007).
ReplyDeleteAlthough, the article doesn’t say what type of auction it is, and the other click on web pages have expired. I am going to focus on the landlord’s side of the auction. Since, the winning bidder will have to sign a lease, which more than likely has a clause that states the winner can’t sublease the apartment. The will result in that collusion among bidders is highly unlikely.
I feel that the best course of action would be for the landlord to have either a Second-Price or First-Price auction. Both types require that the interested parties must submit sealed bids. In a Second-Price auction, the lease would be awarded to the highest bidder; however, the winner pays the second highest bid. This results in aggressive bidding by the interested parties for they know that the high bid only determines if they win. In contrast a First-Price auction the highest bidder pays the amount that they bided on. As we see the price of the rent in the area is high therefore, the bidders will bid more aggressively.
References
Froeb, L. M., McCann, B. T., Shor, M., & Ward, M. R. (2016). Managerial economics: A problem solving approach. Boston, MA: Cengage Learning.
Toy, V. S. (2007, July 11). For Parking Space, the Price Is Right at $225,000. Retrieved April, 2017, from http://www.nytimes.com/2007/07/12/us/12parking.html