Bids on the block
FANNED by EBay flames, it was bound to happen. As buyers have regained an upper hand and sellers have started to sweat, real estate auctions -- live and online -- have caught on.
The changing market has nervous owners trying to sell quickly rather than letting their homes languish while their fears of declining values mount. Buyers, sensing the realty winds shifting their way, see bargains, something they’ve only dreamed of in the last few years. And then, of course, there is human nature and the thrill of bidding competition.
It has led to scenes like this one, on June 25 in Pasadena, with Kennedy Wilson auctioneer Dean Cullum bellowing, “Who’d like to open up the bid at $100,000? Do I see $100,000? Over there! Who wants to bid $125,000?” Minutes later, after a rat-a-tat-tat of climbing offers for a condo, investment partners and auction veterans Robin Morgan and Miriam Wimberly came up with the winning bid of $436,000.
“I think we got a bargain,” Wimberly said. Agents say that comps for the two-bedroom, 2 1/2 -bathroom condo in 1,023 square feet suggest the sale price was right on target for the neighborhood.
Fueling the auction trend too is the higher comfort level most Americans feel using the Internet, which allows them to take virtual tours of homes they’re interested in and to practice their bidding skills on EBay.
“EBay is the greatest thing that ever happened to our industry,” said Steven Good, chairman of Chicago-based Sheldon Good & Co., the nation’s largest auctioneer of real property. It has legitimized auctioning as an acceptable form of commerce to the masses, he explained.
More accepted as a way to sell real estate on the East Coast, the trend has taken longer to capture an audience in the West, where buyers have considered home auctions as the last-chance route to a home sale.
“So many people here think auctions are only for distressed or really bad houses,” said Marti Barajas, an executive for Pacific Auction Exchange, a real estate auction franchise company. Most homes sold at auction, she said, get there because sellers chose to sell them that way.
How popular has the home-buying niche of auctions become? Gross sales of residential properties rose nationally to $14.2 billion in 2005, up 24% from $11.5 billion in 2003, according to estimates reported by the National Auctioneers Assn., an auctioneering trade group.
The two most well-known types of auctions are “open outcry,” in which an auctioneer calls out the bids to the public, and sealed-bid auctions, in which all bidders submit their offers to the auctioneer on the same day, without knowing the bids of other participants. Online auctions also are gaining steam.
In the first two cases, the properties are offered under the following methods: absolute, in which the highest bidder wins the property, no matter the price; “published reserve,” or “minimum,” bidding, in which the seller and auctioneer have agreed to accept the published minimum bid or higher; and “unpublished reserve,” in which the high bid is subject to the seller’s acceptance.
Some open-outcry auctions also permit bidding by telephone, proxy and Web-cast bidding.
Inspect, then bid
Auctions for condos, condo-hotel units and fractional ownerships, in particular, are gaining traction among builders and home buyers, Good said.
Some buyers love the transparency of auctions. Unlike the traditional way of selling a home -- in which buyers first make a bid, sign a sales contract, then pay for the home inspections -- auctions let them do their homework before the sale. Auction companies typically allow 45 to 60 days for buyers to attend open houses and in some cases bring their own inspectors, said Todd Wohl, vice president of Premiere Estates Auction Co. in Manhattan Beach.
Other buyers dislike that they must spend time and money upfront on reading title reports and hiring inspectors, without a guarantee of winning the property.
Owners, for their part, like that they can sell their properties without financial, cosmetic or termite contingencies. On the downside, properties that are not aggressively marketed by auction companies may result in just a few low-ball offers.
The 70 or so bidders at the Pasadena condo auction, braving 100-degree temperatures, vied for a small unit that could generously be described as Cinderella before her fairy-godmother makeover. The unit was part of a cluster of probate sales that weekend. Probate auctions -- where the owners have died and the properties are sold, usually subject to court approval -- make up about 30% of residential real estate auctions, Wohl said. The rest are private-owner sales and foreclosures.
The potential buyers flowed in and out of the condominium, checking out the stained carpets, tired bathrooms and dated kitchen, small bedrooms and tiny built-in bookshelves before gathering in front of the building for the bidding.
Auctioneer Cullum tersely reminded bidders to use their auction cards to bid and kept the proceedings moving briskly.
Buyers should arrive at an auction with a firm ceiling price in mind, auctioneers say, because beginners can get carried away and exceed their lender’s approved loan amount, creating a failed transaction and headaches for the auction company. These buyers also may face financial penalties.
Agent Geoff McIntosh of Main Street Realtors in Long Beach said that buyers too often get caught up in “auction fever” and overspend, and don’t always understand that they pay most of the commission fees. “Buyer premiums,” as they’re called, typically are 7% to 10% of the sale price and generally can be rolled into the mortgage. Listing brokers usually get 2% to 2.5%; the auction companies get 8%. Sellers usually pay some of the marketing and advertising fees.
Not everyone is convinced auctions are a good way to sell a home. Jared West, a 26-year-old real estate enthusiast and agent, so far has resisted the temptation to auction his Long Beach home, listed for $2 million. He bought the house 3 1/2 years ago for under $800,000, then renovated it to the tune of $500,000. He already has moved to Austin, Texas.
“I’m scared that my investment in my Long Beach home would evaporate if I sell it by auction,” West said. “I keep imagining that the day of the auction it will be rainy and no one will show up.” West will revisit the idea of an auction if the house is still unsold in three months.
John Johnston and his two sisters, on the other hand, resisted realty agents’ frequent overtures over the years to list their beachfront property, opting instead to sell by absolute auction. One month before the auction, the siblings received an offer of $2.9 million for the triplex on Sunset Beach, an Orange County community north of Huntington Beach, said Johnston and Wohl, whose Premiere company ran the event. But the three decided to take a chance on the public sale. Good thing they did.
The 30-by-90-foot property, bought by their father in the 1960s for $3,500, went to the highest bidder for nearly $3.5 million, including the fees. Each of the 68 potential buyers arrived financially pre-qualified and with deposit checks for $100,000, Wohl said.
Bidding on foreclosures
Buyers seeking bargains sometimes look for foreclosure auctions, which take place at the property site or on courthouse steps. The lender’s representative typically makes the first bid, up to the amount owed. If no one else bids, the lender gets the property, then sells it. Outside buyers who win a foreclosure property must pay in full with cash or a cashier’s check at the close of the auction. These sales are complicated, experts say, making bargains iffy. Properties often require extensive work and may have liens against them.
Buying online
Online auctions have grown in popularity since 2001, said RealtyBid.com Chairman Tony Isbell. His company has sold 2,700 properties in the last three years and currently lists about 300 to 400 properties each month. Vacation homes are particularly popular right now, he said.
Under RealtyBid’s rules, properties are listed for 14 days, during which time buyers -- after registering with the online company (for free) -- are encouraged to visit the sites in person. Bidders may place their offers any time during the two-week period; all bids are displayed online. The winners receive a contract by e-mail, which they sign and return with a deposit check.
“The online market exposure is so much bigger than live auction,” Isbell said. “The Internet allows someone to bid from anywhere in the world, any time, day or night, over two weeks.”
Karen Schmidt, a GMAC Real Estate agent in Atlanta, counts her online sales as a nice chunk of her business, using the method at least once a month for her bank clients with foreclosure homes.
“Online auctions are especially good when we’ve tried everything but putting dancing clowns on the roof of a house for sale,” Schmidt said. “The investors love the process and watch the clock when the bidding time is counting down. It’s an adrenaline rush.”
The same can be said for the five-day round-robin bidding process, an auction-type approach laid out in Bill Effros’ book “How to Sell Your Home in 5 Days.” Following three days of seller advertising, potential buyers attend a two-day open house, at which they place their bids on a sign-in sheet at the property site. After the bidding closes, the auctioneer calls each person who made a bid, asking if he or she wants to make higher offers. The process is repeated until there is only one bidder left. The minimum-bid process is nonbinding to both parties.
“People come to me after they’ve been beaten up in the market -- no activity, no offers,” said George Cappony, a sales coach who takes buyers and sellers through the process and runs the website 5Day.com. “The seller loves that he’s done” so quickly.
