With one week until the Sabine auction, it is clear that many potential buyers are considering participating in the sale. With starting bids as low as $85,000, bargain hunters will inevitably emerge looking for a great deal. The big question, however, is what is the right price for a Sabine unit.

For a few reasons, valuation of the Sabine units is particularly difficult. First, the building has had real problems with noise complaints, elevator issues, and a tenant lawsuit. The developers claim that the issues have been fixed but the history will still impact the value. A building is a brand, it is part of your identity, and the Sabine brand is damaged.

Second, not a single Sabine unit was transacted on the MLS in 2009. Not one. The most recent comparables are 5 transactions from mid-2008. These show an average price per square foot of $256 for one bedroom units (2 sales) and $352 for two bedroom units (3 sales) -- an unusually large difference between unit types. Since these prices were during the market peak and since they predate the buildings problems, they are just about useless.

Third, the Sabine is a condo conversion project and not a new development. This greatly restricts the comparable units that can be considered in a real analysis. Essentially, it leaves Brazos Place as the primary point of comparison. Since Brazos place also went to auction, it may be a good indicator of where the auction prices will land. But the Brazos Place auction was held during tougher times and the building did not have the problems that have plagued the Sabine. One other possible comparable is the Brown building, but we have seen very few recent MLS transactions.

So, while those are the problems, we had to start somewhere and here is the analysis: we used three valuation methods:

(1) We looked at condo conversion sales on MLS in Brazos Place and the Brown Building over the last 4 months. During this period, the average price was $271 / square feet for transacted units.

(2) We looked at the Brazos Place auction which resulted in an average price of $281 / SF (although not really relevant, the average discount was 29%).

(3) Peak MLS sale price by floor plan from early 2008. Useful information but in no way indicative of the value today.

Here is the result for each of the units being offered for sale in next week's auction:

Unit #	SF	Bed/Bath	Original Price	Starting Bid	(1) Recent MLS Conversion Avg ($271)	(2) Brazos Auction $/SF ($281)	(3) Peak MLS Sale by Floorplan
303	693	1/1	$234,900	$85,000	$187,803	$194,733	$239,900
305	1462	2/2	$409,900	$145,000	$396,202	$410,822	n/a
308	925	1/1 + Study	$267,900	$95,000	$250,675	$259,925	n/a
401	1461	2/2	$485,900	$165,000	$395,931	$410,541	$512,000
409	918	1/1 + Study	$259,900	$95,000	$248,778	$257,958	n/a
501	1461	2/2	$485,900	$175,000	$395,931	$410,541	$512,000
502	755	1/1	$239,900	$95,000	$204,605	$212,155	n/a
504	728	1/1	$249,900	$85,000	$197,288	$204,568	n/a
508	951	1/1 + Study	$279,900	$95,000	$257,721	$267,231	n/a
510	682	1/1	$204,900	$85,000	$184,822	$191,642	n/a
605*	1467	2/2	$434,900	$155,000	$397,557	$412,227	n/a
610	682	1/1	$229,900	$85,000	$184,822	$191,642	n/a
703	695	1/1	$240,900	$95,000	$188,345	$195,295	$239,900
704	728	1/1	$259,900	$85,000	$197,288	$204,568	n/a
707	1426	2/2	$409,900	$135,000	$386,446	$400,706	$364,900
801	1461	2/2	$530,000	$185,000	$395,931	$410,541	$512,000
802	755	1/1	$273,400	$105,000	$204,605	$212,155	n/a
805	1460	2/2	$469,900	$165,000	$395,660	$410,260	n/a
808	951	1/1 + Study	$311,900	$95,000	$257,721	$267,231	n/a
904	728	1/1	$263,900	$85,000	$197,288	$204,568	n/a
907	1426	2/2	$434,900	$135,000	$386,446	$400,706	$364,900
909	918	1/1 + Study	$294,900	$95,000	$248,778	$257,958	n/a
910	682	1/1	$244,900	$85,000	$184,822	$191,642	n/a
1001	1419	2/2	$550,000	$195,000	$384,549	$398,739	$512,000
1004	728	1/1	$279,900	$95,000	$197,288	$204,568	n/a
1007	1426	2/2	$437,900	$145,000	$386,446	$400,706	$364,900
1008	951	1/1 + Study	$324,900	$105,000	$257,721	$267,231	n/a
AVG	1035		$337,444	$117,222	$280,425	$290,773	$402,500

So what does this tell us? The analysis suggests that the appropriate auction price (including auction fees) is approximately 20% below the original listing price. But this is where common sense needs to play a role: while those numbers may be reasonable comparables, a 20% discount is probably not enough for a 27-unit fire sale in a troubled building. If 20% was fair, the project would have been able to close at least one sale over MLS in 2009. For this building and this auction, a 30% discount (again, including fees in the price) is probably a better "fair" price threshold.

Our final thought: the auction will likely do well and see strong competition between buyers. Unless (1) this is the building you love or (2) you have a maximum price that you can pay for a downtown unit and this is the only option, be careful. When it comes to downtown condos there is one important rule for resale: buyers pick the building they want to live in first and then they pick the unit. It is the building's popularity that will set your future resale price. The litigation, quality problems, and the fact of an auction means that a Sabine deal may not be as good as it seems. Also, remember that an auction price is not a discount: it is fair market value.

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