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Online Auction luxury real estate aim to shake up sales

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An online auction for a luxury home in Abbotsford, B.C., is drawing attention for its novel approach, which some observers say has potential to inspire new sales even if it doesn’t have any notable impact on the housing landscape.

Bidding opens Tuesday on the 12-bedroom, 10-bath restored train power station known as the “Sumas Powerhouse,” which was previously listed for $5 million and has an assessed value of $2.2 million on B.C. Assessment.

It’s one of three properties in Canada listed on global firm Concierge Auction’s website. A news release says it’s targeting Chinese buyers and will be sold in co-operation with Re/Max.

Scott Pate, a project sales manager with Concierge, said luxury real estate has been a buyers’ market for quite some time in both the United States and Canada and auctions are a way to give sellers more certainty.

“We’ll bring the market to this sale instead of the normal way of selling real estate, which is putting it on the market and waiting for an offer, which could take years and years,” he said.

“The market is motivated because there’s a fear of missing out. This auction is going to end on a certain day … so it creates a lot of interest.”

Real-estate auctions are typical in Australia and New Zealand, but the model is less common in Canada.

A real-estate agent in Victoria tried the in-person auction approach in 2016 with a property in the city’s upscale Rockland neighbourhood, holding a public auction featuring a pianist playing a grand piano in the ballroom at the event.

But local media reported that although 60 people filled the room, only one was an interested buyer so the auction was cancelled. In 2017, the B.C. Supreme Court accepted a $1.8-million offer for the historic mansion in foreclosure.

Tom Davidoff, director of the University of British Columbia’s Centre for Urban Economics and Real Estate, said online auctions aren’t all that different from the way we buy and sell homes traditionally in Canada, especially in cases where there are multiple interested buyers and a bidding war.

That could make it comfortable for Canadian buyers to transition to the model.

“It certainly could be a direction the market could go. In segments where the market is slow today, people will try different approaches to move product, so it’s certainly possible,” he said.

But beyond creating another way for potential buyers to bid, he said he doesn’t believe there will be an impact on the market in terms of housing prices or competition.

“This will have no impact on the market overall,” Davidoff said.

In Toronto, On the Block sells real estate both the traditional way and through its online auction platform but doesn’t focus on luxury sales.

Co-founder Daniel Steinfeld said online auctions offer a way around some of the frustrations that come with silent bidding wars under the traditional system.

As part of the company’s model, buyers must sign agreements to make the value of their bids public while their identities remain protected. Real estate board regulations otherwise prohibit real-estate agents from disclosing the substance of competing bids.

“Buyers, especially in the Toronto and Vancouver markets, have grown pretty frustrated with the blind bidding approach,” he said.

The platform also allows the company to post more information than might be available through MLS listings, like copies of home inspections and agreements of purchase and sale, which makes it less likely for a sale to fall through.

The most important factor in a successful real estate auction is the starting price, which can inspire competitive bids, Steinfeld said. So when identifying potential properties for auction, the company interviews the sellers to determine their objectives and market expectations.

If the seller has unreasonable expectations about the market value of their property, it’s probably not the right fit for auction.
Market conditions matter less, he said.

“We have seen in both good and bad market conditions that it can work, it really just comes down to the appropriate pricing strategy,” Steinfeld said.

Auction properties are typically first-time listings and the company sets a reserve price, which represents the minimum value at which the seller is obligated to sell.

“Once bidding reaches that number, everyone knows for sure that property will sell,” he said.

“Then everyone starts to bid quite a bit more because they know at that point that if they win, it’s theirs.”

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Fronsac Real Estate Investment Trust might be Overpaying Its CEO?

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Jason Parravano became the CEO of Fronsac Real Estate Investment Trust (CVE:FRO.UN) in 2017. This report will, first, examine the CEO compensation levels in comparison to CEO compensation at companies of similar size. After that, we will consider the growth in the business. And finally – as a second measure of performance – we will look at the returns shareholders have received over the last few years. The aim of all this is to consider the appropriateness of CEO pay levels.

See our latest analysis for Fronsac Real Estate Investment Trust

How Does Jason Parravano’s Compensation Compare With Similar Sized Companies?

According to our data, Fronsac Real Estate Investment Trust has a market capitalization of CA$81m, and paid its CEO total annual compensation worth CA$147k over the year to December 2018. While this analysis focuses on total compensation, it’s worth noting the salary is lower, valued at CA$135k. We looked at a group of companies with market capitalizations under CA$263m, and the median CEO total compensation was CA$161k.

So Jason Parravano is paid around the average of the companies we looked at. This doesn’t tell us a whole lot on its own, but looking at the performance of the actual business will give us useful context.

The graphic below shows how CEO compensation at Fronsac Real Estate Investment Trust has changed from year to year.

TSXV:FRO.UN CEO Compensation, October 20th 2019

Is Fronsac Real Estate Investment Trust Growing?

Over the last three years Fronsac Real Estate Investment Trust has shrunk its earnings per share by an average of 51% per year (measured with a line of best fit). It achieved revenue growth of 43% over the last year.

As investors, we are a bit wary of companies that have lower earnings per share, over three years. But on the other hand, revenue growth is strong, suggesting a brighter future. It’s hard to reach a conclusion about business performance right now. This may be one to watch. You might want to check this free visual report on analyst forecasts for future earnings.

Has Fronsac Real Estate Investment Trust Been A Good Investment?

Most shareholders would probably be pleased with Fronsac Real Estate Investment Trust for providing a total return of 42% over three years. This strong performance might mean some shareholders don’t mind if the CEO were to be paid more than is normal for a company of its size.

In Summary…

Remuneration for Jason Parravano is close enough to the median pay for a CEO of a similar sized company .

While we would like to see improved growth metrics, there is no doubt that the total returns have been great, over the last three years. So considering most shareholders would be happy, we’d say the CEO pay is appropriate. If you think CEO compensation levels are interesting you will probably really like this free visualization of insider trading at Fronsac Real Estate Investment Trust.

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Slowdown on Gripped Iran Real-Estate Market

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A serious and historic slowdown has gripped Iran’s residential real-estate market, with nationwide sales down 55 percent this month compared with the same period last year.

Iran’s semi-official ISNA news agency says nationwide sales from September 21-October 6 were 16,400 units, a huge drop from the previous year when around 35,000 units were sold in the same period.

The main reasons for the drop is a deep economic recession and high inflation, which have affected the middle class, especially people on fixed incomes and salaries. They simply spend their money on bare necessities and are priced out of the market for buying an apartment. Some can barely afford rising rents, especially that in Iran owners demand extra cash for signing a rental agreement.

But oddly, high prices are also a reason why those buyers who have the money sit on the fence and wait to see a more reasonable market. Prices have risen anywhere from 70-200 percent in the last 18 months.

If there is an economic recession, why have prices gone up? The reason for this is a steep devaluation of the local currency. The rial has lost its value against the U.S. dollar and other major currencies fourfold since February 2018, mainly as a result of crippling American sanctions.

Owners of homes and apartments think of asking prices for their properties in terms of dollars, not the local currency. Therefore, prices owners demand easily double and triple. In fact, calculated in dollars, real estate prices have not risen at all. One square meter in Tehran goes for an average price of $1,200 or $110 per square foot. This is much lower than in other capital cities in the world.

But people with fixed incomes are not earning dollars to be able to afford the higher prices. In short, a combination of high prices in local currency and lack of jobs and higher incomes have pushed sales down.

However, prices seem to be slowly declining, as those owners who need to sell are ready to bargain. There are also buyers with ready cash who want to take advantage if the price is right. For them, it is a strategy to protect their capital in Iranian currency from further devaluation – invest in real estate.

In the last 30 days, sales in Tehran have improved by 25 percent, according to ISNA and real-estate agents who have spoken with local media. This might signal a better balance between demand and supply as prices have edged lower. But still the volume of sales remains much lower than last year and a fraction of what it was in 2017, before U.S. sanctions.

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Canadian Real Estate Sales Jump To 2016 Levels

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Who needs government stimulus? Canadian real estate sales are on the rise, in almost every major market. Canadian Real Estate Association (CREA) numbers show real estate sales are back to pre-cooling measures, as of September. The big spike in sales may have you thinking of a recovery. However, CREA’s chief number cruncher expressed some concerns. The length of the rebound from lows will be dependent on the global economy.

Canadian Real Estate Sales Rise Over 15%

Canadian real estate sales made a substantial climb compared to last year. CREA reported 41,819 sales in September, down 3.81% from the month before. Compared to the same month last year, sales are up a whopping 15.52%. Monthly declines are seasonally expected, but the annual increase is big news.

Canadian Real Estate Sales

The unadjusted sales for all home types, as reported through the Canadian MLS.

Source: CREA, Better Dwelling.

Sales growth is trending higher, as government’s promise to stimulate demand. September’s rise in sales is the biggest 12-month increase since February 2016. Last month is also 7.45% higher than the 10-year median number of sales for September, and the biggest since 2016. Strange to promise demand stimulus, as real estate sales approach new highs. Sales are right back to levels before governments tried to lower sales volumes.

CREA’s chief economist Gregory Klump poured a little cold water on the sales increase. Klump notes, “how long the current rebound continues depends on economic growth, which is being subdued by trade and business investment uncertainties.” Basically, things have improved – but remain cautious.

Canadian Real Estate Sales Change

The annual percent chage of unadjusted sales for all home types, as reported through the Canadian MLS.

Source: CREA, Better Dwelling.

British Columbia Has The Fastest Rising Markets

The fastest rising sales numbers are in Vancouver, Fraser Valley, and Quebec City – in that order. Vancouver reported 2,363 sales in September, up 44.6% compared to the same month last year. Fraser Valley followed with 1,283 sales, up 31.3% over the same period. In a distant third is Quebec City with 553 sales, up 22.6% from last year. Worth a note is BC markets were unusually slow last year. Even though Vancouver and Fraser Valley saw a big jump in sales, they’re still shy of 2017’s levels.

Canadian Real Estate Sales By Market

Canadian real estate sales in markets with more than 400 sales in 2018.

Source: CREA, Better Dwelling.

Slowest Rising Sales Are In Greater Toronto Suburbs

The slowest markets in Ontario are Greater Toronto suburbs, and Halifax. The Niagara region reported 472 sales in September, down 4.3% compared to last year. Hamilton follows with 1,020 sales, up 3.2% from last year. Halifax was the third slowest major market with 514 sales, up 5.5% from last year. In case you missed it, only one major market in Canada saw declines in sales last month.

Canadian Real Estate Sales Change By Market

The percent change in Canadian real estate sales, in markets with more than 400 sales in 2018.

Source: CREA, Better Dwelling.

Canadian real estate sales are up around the country, in all but one major market. When markets move like this in sync, it typically has little to do with local fundamentals. Instead, this more likely has to do with the anticipation of broad policy changes.

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