Auctions Help Buyers Benefit From Real Estate Slump
Elise Keen and her husband, Michael Anderson, were both happy and stunned when the auctioneer pointed to them one recent Sunday afternoon and said, “Sold!”
The couple spent weeks preparing to bid for their dream house in Saugus. They knew how much they were willing to offer, and they did plenty of comparison shopping. The auction started at $190,000 with about half a dozen bidders. Within two minutes, the couple had topped them with an offer of $246,000. Now the rush is on to close the sale within a 45-day escrow period.
Keen and Anderson are among those who are benefiting from the local real estate slump. A growing number of owners are either choosing or being forced to sell their properties at auction, and buyers are discovering deals that might not be available through a conventional sale.
You’ve seen the ads: “Absentee owner says sell!” “Court-ordered liquidation!” “Builder’s close-out--everything must go!” Most of these notices can be found in daily newspapers and real estate or business journals.
Locally, the number of homes and condos being sold at auction has increased markedly--following a national trend that is expected to continue. Some local auction companies have seen their business triple during the past year.
“A lot of people are tired of their property being on the market for so long. We put it up for sale and it’s gone in four to six weeks,” said David Sanford, a partner at Gamson & Associates in Encino, an auction firm. Sanford got into the home-auction business 20 years ago with Charles Flans. In 1989, they split into two businesses, and today Gamson & Associates and Charles Flans & Associates, also in Encino, are the largest home auctioneers in the San Fernando Valley.
Sanford said he starts the home bidding at 60% to 70% of the comparable neighborhood prices. The bidding usually adds another 20% to 30%, which suggests that the most a buyer can expect is a 20% discount. Other auctioneers, however, say better deals are available.
Home sellers run the gamut. Some properties are being sold by the Resolution Trust Corp., created by Congress to deal with the assets of failed savings and loans. Most residential RTC properties, however, are outside California. There are also auctions sponsored by the U. S. Department of Housing and Urban Development, the California Department of Transportation, the Veterans Administration and U.S. Bankruptcy Court as well as court-supervised probate sales.
Finally, there are individual homeowners, banks and builders that want or need to unload their real estate. Some of these are distress sales; some are not.
Another couple, Mike and Shahla, closed escrow April 1 on a Northridge home they bought at auction.
In February, 52 prospective buyers showed up to bid on the three-bedroom home with a pool. Shahla really wanted the house, however. Before the auction started, Mike offered the seller $335,000--more than the property was expected to bring at auction. Before the bidding could begin, the seller accepted Mike’s offer and sent the others on their way.
“This was a couple who wanted that area,” Flans recalled. “They wanted no competition.”
Mike and Shahla may not have gotten a bargain, Flans said, but they did get the home they always wanted.
Last year, Flans said, he sold a four-bedroom home under similar circumstances on Trullbrook Drive in Tarzana adjacent to the Braemar Country Club. Right before the auction, one of the bidders made a $450,000 offer. “The guy made an offer the bank couldn’t refuse,” Flans said. But, “some of the people who showed up to bid got a little uppity because nothing happened.”
Does this mean that auction buyers get a really good deal? “Yes and no,” Sanford said. He recalled selling the Woodland Hills home of Christina Crawford, daughter of famed actress Joan Crawford. The house had an estimated worth of about $850,000, but it sold at auction last year for $515,000. “She was happy to get it sold,” Sanford said. “She didn’t care what it sold for.”
Not all sales are such a coup for the buyer, however. Sanford also auctioned a home in Sherman Oaks for $310,000 when it was appraised at just $240,000. “People get caught up in the hype,” Sanford said. Often that means a home will sell for more at auction than it would if put up for sale by the owner or sold through a real estate brokerage.
“People do not come to auctions to buy retail,” said Mario Piatelli, a more than 40-year auctioneer with the Piatelli Co. in Beverly Hills. Auctions that don’t offer the bidders a sizable discount, Piatelli said, should be avoided by buyers. He is particularly critical of HUD and VA auctions that he calls “a waste of time.” Many of these properties are available, however, for a very low down payment.
While the currently depressed real estate market is forcing certain owners to sell now at auction, there are also many who have decided that now isn’t the right time to auction their properties, Piatelli said. He has in the past organized auctions at the Los Angeles Convention Center. This year, he said, none is scheduled because “the market has been so down and the sellers know they’ll get murdered by low prices.”
“It’s a tough, tough business. You can go for six months without doing a deal,” Piatelli said. This month, though, Piatelli plans to auction 24 acres of land in Oxnard. The seller pays all advertising costs for the auction, he said, and the auctioneer makes about 6% on the sale of homes and 10% on the sale of land.
Because many sellers have unrealistic expectations about what their properties will bring at auction, “we turn down as many auctions as we take,” Flans said.
Flans recently sold two new homes on Runnymede Street in West Hills in the upper-$300,000 range and a three-bedroom home on Sunburst Street in Northridge. All of Flans’ sales are on Saturdays and Sundays, and 99% are held at the site of the property being auctioned.
“It’s like a game, but it involves research,” said Elise Keen, who bought her Saugus home through a builder close-out organized by Santa Monica-based auctioneer Kennedy-Wilson Inc.
“The good news is you can get a great deal,” Keen said. The downside is “there is a lot of pressure.”
Keen and her husband plan to rent out their Canyon Country condo instead of selling it in this down market. They bought the condo in the midst of a feverish market several years ago when they “won” the privilege of buying in a lottery.
How times have changed.
