Real estate auction home buying and selling

real estate auction
Real estate auction (infographic from warwickauctions.co.uk via visual.ly)

As the housing market continues to grow, buying and selling homes through the real estate auction is becoming more popular.  Contrary to popular belief, real estate auctions are not just for distressed properties.  Being part of a real estate auction can be exciting, but it’s not for everyone.  There are pros and cons for both the home buyer and seller.

A real estate auction is traditionally a “live” auction performed at a designated place where the bidders and auctioneer meet to conduct the auction.  You must be present, or have a proxy present, to make your bid.  You must register to bid at the auction, usually presenting proof of funds for your deposit.  The pace of the live auction can be very quick, so you have to pay close attention to the action.

Another form of real estate auction that has blossomed out of the foreclosure crisis, is the online auction.  The online real estate auction allows many homes to be auctioned simultaneously.  The atmosphere and pace of an online auction is different from a live auction.  Of course, buyers can make their bid from virtually anywhere, and the bidding can take place over days or weeks.

If you want to sell your home via real estate auction, the benefits include: decreasing your homes time on market; you know when the home will sell; the home sells “as-is;” home buyer contingencies are typically few or none.  The National Association of Realtors (nar.realtor) auction information describes homes that are good prospects (What Properties are Suited for Auction?) , which include: homes with a lot of equity; unique homes; vacant homes; and homes that are difficult to appraise.

However, real estate auctions are not for all sellers.  The downside to the auction is that your home may not sell, especially if you place a reserve (seller reserves the right to accept or reject highest bid) on the auction.  There are also costs that typically include the auctioneer’s commission and advertising costs, which could be due even if the home does not sell.

If you’re a home buyer, a real estate auction offers benefits for you too.  Real estate auctions offer another avenue to purchase homes other than those listed in the MLS.  This can be attractive especially when there is limited inventory of homes for sale.  Buyers guide the sale price through their bidding.  Unless it’s a blind bid auction (where bids are not disclosed to other bidders), you can decide if you want to increase your bid based on others’ bids.

If you want to buy a home at auction, do your due diligence.  Read the terms of sale, there may be a minimum bid, minimum deposit, and even a buyer’s premium (which can be as high as 5 percent of sale price) and other fees that may be due at closing.  Check the auction schedule frequently because the date and time may change, or the auction can be cancelled.  Understand the type of auction you’re bidding in, because you may not get the home even if you’re the highest bidder (especially online auctions).  Inspecting the property may be a challenge as you may have limited access.

Hire a Realtor to help you buy a home at a real estate auction

Hire a Realtor to assist and guide you through the details of buying a home via real estate auction.  Your agent can help you get the terms of sale and any due diligence material the auctioneer provides.  Additionally, they can also provide comps for the property to help you decide on your bidding strategy.  If you have the winning bid, your agent can help you with the details of getting you to settlement by assisting with contracts, financing, and other aspects of the sale.

From the National Association of Realtors auction section:

BENEFITS TO THE SELLER:
-Buyers come prepared to buy
-Quick disposal reduces long-term carrying costs, including taxes & maintenance
-Assurance that property will be sold at true market value
-Exposes the property to a large number of pre-qualified prospects
-Accelerates the sale
-Creates competition among buyers—auction price can exceed the price of a negotiated sale
-Requires potential buyers to pre-qualify for financing
-The seller knows exactly when the property will sell
-Eliminates numerous and unscheduled showings
-Takes the seller out of the negotiation process
-Ensures an aggressive marketing program that increases interest and visibility

BENEFITS TO THE BUYER:

Smart investments are made as properties are usually purchased at fair market value through competitive bidding
-The buyer knows the seller is committed to sell
-In multi-property auctions the buyer sees many offerings in the same place at the same time
-Buyers determine the purchase price
-Auctions eliminate long negotiation periods
-Auctions reduce time to purchase property
-Purchasing and closing dates are known
-Buyers know they are competing fairly and on the same terms as all other buyers
-Buyers receive comprehensive information on property via due diligence packet

Copyright© Dan Krell
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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Short sale marketing strategy

According to the Corelogic Insights blog, the volume of distressed home sales is declining. Consider that during the peak of distressed sales, which occurred in January 2009, the volume of distressed sales nationally comprised 32.4% of total home sales. Compare those figures to Corelogic’s December 2nd report, which indicated that nationwide distressed sales volume accounted for about 10% of all home sales during September 2015. However, distressed sales volume varies from state to state; Maryland recorded the highest volume of distressed sales (20.7%) among all states during September.

distressed home sale

Distressed home sales include bank owned properties (REO) and short sales. It’s important to note that prior to the housing bust in 2007, nationwide REO sales were below 6.2% of all sales. September nationwide REO’s accounted for 6.4% of all sales; while short sales accounted for 3.3% of all sales, and have maintained below the 4% level for over a year.

The plateau of short sales may be due the many home owners who remain underwater. In a June 11th press release, Zillow announced that the slow pace of increasing home prices are leaving many home owners underwater. The nationwide rate of negative equity among mortgaged home owners was 15.4% during the first quarter of 2015 (which is down from 18.8% a year ago); the negative equity rate in the D.C. metro area was reported to be 17.2%. For about half of all underwater home owners, home prices would need to increase 20% or more for them to break even (zillow.com/research).

If you are underwater on your mortgage, check with your lender, they may have some options to help you. However, if you are planning a move, a short sale may also be an option. Simply put, a short sale is asking your lender to take a lower payoff and “forgive” the difference.

If you decide to go through the short sale process, you should know that your sale will be subject to your lender’s approval. The lender will decide if they will accept the buyer’s offer based on the home’s “fair market value.” Many lenders use broker price opinions to assist them in determining a sale price; however some lenders may use other avenues.

You should be aware of a recent trend used by some lenders, which is bypassing the short sale process and forcing home sellers to list short sales on auction websites – even if there is an existing contract of sale! The given rationale is that the internet auction process provides a fair market value for the short sale. However, this stance by some lenders may lead some home sellers to breach of contract. In a recent conversation with several local (Maryland) state regulators, the present consensus is that “…they are aware of the situation, but there is nothing they can do about it;” however, they welcome consumer complaints: MD Commissioner of Financial Regualtion and Consumer Financial Protection Bureau.

Even though the concept is straightforward and the government has provided lenders guidance on short sales, the process can still be lengthy and full of surprises. The process does not guarantee a sale, and the lender could still foreclose if you stopped paying the mortgage. Additionally, the short sale may negatively affect your credit; and there may be legal liabilities to consider. So, before you embark on a short sale, you should consult an attorney about all of your options (which may include and is not limited to a loan modification, deed-in-lieu, or bankruptcy).

By Dan Krell
Copyright © 2015

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Going once, Going twice…sold!

by Dan Krell

When you think of a real estate auction, what may come to mind is a foreclosure sale. The foreclosure sale has been popular for many years with investors and home buyers looking for a good deal. However, auctioneers have been auctioning all types of real estate (such as commercial, residential, and land) for many years.

Real estate auctions have increased so much over the last few years, such that the National Association of Auctioneers reports that residential real estate auctions have increased 8.4% from 2004 to 2005 (auctioneers.org). The growing trend is national as well as local.

Is an auction the right tool for everyone? According to Fernando Palacios, the local representative of Tranzon, LLC (a national auction company), a real estate auction would not benefit everyone. Typically, real estate auctions have been used by investors and builders to sell their inventory quickly. However, in the present real estate market more home owners have been taking advantage of the “fast track” process so as sell their home quickly. He explains that the auction process is right for you if you want a quick sale and you can set your reserve price about 10% below the market.

Why the discounted price? Mr. Palacios explained that although the goal is to get a full retail price or higher, the reserve price is set below market value to help create a “buzz.” The buzz attracts potential home buyers to the auction.

There is a lot of activity the day of the auction as the excitement builds. Sometimes several bidders bid against each other in an effort to get the winning bid, resulting in a higher than market price. According to Mr. Palacios, this happens more often in moderately priced homes.

Mr. Palacios described the benefits of an auction as having a set sale date, maintaining privacy, selling “as-is,” and receiving a “cash” offer. Having a specific date for the sale can be helpful in planning as well as being, as Mr. Palacios states, “emotionally freeing” for the home owner. The auction has one date for prospective home buyers to present their “offers” to you via the bidding process.

He continues to explain that if sell your home through a Realtor, you must maintain your home in “showing” condition and be prepared for home buyers to come by at any time. Many times, home buyers will come when it is inconvenient such as dinner time and your kid’s bed time. The auction process helps you maintain your privacy until the date of the auction, when all registered participants can preview your home.

Another benefit of the auction process is that the home is sold “as-is;” the home buyer purchases the home without a home inspection. The home owner does not have to worry about a home inspection killing the deal, or about making repairs to the home.

Getting a “cash” offer is a basic part of the auction process, which means there are no contingencies and you can count on closing in thirty days. This is to the home owner’s advantage as the home buyer has no way out of the contract.

For more information on real estate auctions and to see if it right for you, visit the National Auctioneers Association (auctioneers.org) and the Auctioneers Association of Maryland (mdauctioneers.org).

This column is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of May 7, 2007. Copyright © 2007 Dan Krell.