L.A. auction discounts: Up to 67% off peak pricing

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Read this one carefully, there is news and then there is an explanation. Business Week, reporting on a March 16 foreclosure auction in Los Angeles, reports that several homes sold at huge discounts:

‘A four-bedroom house in Palm Springs that had previously sold for $1.2 million went for $625,000. A two-bedroom cottage in Los Angeles’ trendy Silver Lake neighborhood that had traded hands two years ago for $887,000 got picked up for $285,000. ... Edwin Beeks, retired from the U.S. Navy after being wounded in Iraq, picked up a four-bedroom ranch house in Lancaster, Calif., with a bid of $95,000. The previous owner paid $255,000 in 2005...’

Let’s run those discounts from peak pricing quickly: That’s 47.9% off of peak pricing in Palm Springs, 67% in Silver Lake, and 63% in Lancaster.

Explanation: Be careful -- we don’t know that these three houses actually sold. We know there was an auction and there was bidding. But we don’t know whether the banks that own the houses accepted the winning bids. I’m hearing more and more stories about winning auction bids being rejected by banks as too low. I reported recently about a house in Ladera Ranch that went to auction, was the subject of a bidding war, and ‘sold at auction,’ but then went back on the market because the bank didn’t accept the winning bid.

Remember how these auctions work: If you bid and win, you agree to pay the total of the bid, plus 5%, and you agree to pay it quickly. But the bank does not necessarily agree to sell you the house. Banks can, and often do, reject winning bids as too low.

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com.
Hat tip: Peter M, in comments
Photo Credit: AP