Real Estate Investing

“The four D’s aren’t the only reason to sell at auction,” said our class instructor this morning as he talked about the agency relationship for real estate and auction professionals.  He said the FOUR D’s are: death, divorce, debt, and disaster.  Auctions have long been labeled as stigmatized selling because of those four reasons, but they are becoming more and more common for sellers who just want to sell FAST.

Typically it takes about two months to complete the process - from when the auctioneer takes the “listing” to the day the sold property closes.  There are two basic types of auctions, according to the class.

The Auction which is an auction with reserve.  This seller agrees to sell but it should (although it doesn’t always) earn a minimal amount.  The Absolute Auction is going to sell regardless of price to the highest bidder.  Of course that doesn’t necessarily make it so, either.  The auctioneer can choose to not sell a property if the price is just too low.

Another eye-opener at class this morning is there is NO cooling off period for a buyer at auction.  If a buyer writes a deposit check for $10,000 - a nonrefundable deposit typially - and stops payment on the check, that buyer can go to prison for up to three years.  Auctioneers sell as-is, where-is, period.  Take it or leave it.

In a timely article in my local newspaper today,  the popularity of auctions is growing,

“It’s kind of a gamble,” said Dale Hire, who has been buying and renovating homes for almost 20 years. For those with cash on hand and a good deal of chutzpah, there have been plenty of opportunities to buy. Nationally, residential real estate auctions last year ticked up 1 percent to $17.1 billion in gross sales revenue, despite slower real estate sales overall, according to the National Auctioneers Association.

Locally, even though sales of homes and lots fell 29 percent here in 2008 from the year before, auctions have shown surprising popularity. On Tuesday, more than 100 auctions were listed in the Nashville area alone.

Auctions are very exciting and can be a LOT of fun.  As someone who’s attended home auctions, it can be very difficult to not jump in and make a bid when you’re swept up in the excitement.  Luckily, cool heads have prevailed for me and I haven’t found myself to be the proud owner of a property that I can’t afford!

Photo by Urban Woodchuck via Flickr Creative Commons.

If you’re afraid to list your home in this slow sellers’ market, if you have good equity in your house, and if you need to move FAST, then an auction may be a great option for you.  When you auction, you can go from contract with an auctioneer to closing in 60 short days.  And typically, homes up for auction DO SELL… maybe not for what it would sell for if you have the time for a protracted listing period, but for what the market will support that day.

Way back when, auctions were thought of only as a last resort - someone had passed away and the kids had to sell or the homeowner was about to lose their home and needed to get rid of it fast.  Today’s auctions are for the seller who doesn’t want to wait around forever for the home to sell.  They don’t have to keep it clean in case someone wants a last minute showing.  They establish the time frame for the sale - a sale that is final.  There are no contingencies when an auction is held - homes are sold as is, where is.

When you buy a home at auction, you typically have to put down 10 percent.  So if you’re in for $100,000, you’ll have to come up with $10,000.  Auctioneers are typically willing to work with the buyer - that is they’ll ask for a check but it may be post-dated by a few days to give you time to move money into the account.   If the buyer defaults on the sale they lose their 10% down payment.

A major fear that sellers have is the possibility that they’ll have to sell the home at a price much lower than they expected.  In these cases, the auctioneer and the seller may put a reserve on the home so if the bids are laughable at the end of the day, the seller does not have to sell.   The only thing the seller is “out” are costs associated with advertising the auction.

Photo from Bob Parks Realty, LLC Auction Division.

I have Van Halen’s JUMP in my head today while reading the news that existing home sales in July rose 3.1 percent - an unexpected JUMP in what Wall Street anticipated.

Clearly my own market is not in an area where the housing market is in a complete state of chaos because business seems strong.  On the flip side of that statement, however, we have fewer agents working in my office than we’ve had in the last five years. Five years ago, there were about 60 or 65 of us. Today we’re down to 41 agents.  Of those, I haven’t seen 16 of them in over two months. Maybe it’s not my market improving so much as there are fewer agents around to share the buyers and sellers who are active in the world of real estate transactions.

The MSNBC article includes another caveat,

“… the number of unsold properties hit an all-time high, the latest indication that the worst housing market slump in decades is far from over.”

On a completely unrelated note, I attended an auction over the weekend in which two properties were sold.  I was counted as a nosey-neighbor, lookie-loo attendee as I had no intention of bidding.

Before I go into more auction information, let me emphasize that I’m not a trained, licensed, or apprenticed auctioneer so what I’m about to say is just from the experiences I’ve had in real estate.  I have been to two types of auctions:  absolute auctions and auctions with a reserve.  An absolute auction occurs when the item on the chopping block will sell to the highest bidder and there’s no turning back.  If someone, for example, bid $100 for a house and they’re the highest bidder, then SOLD!   I haven’t seen a house sell at an absolute auction, just stuff like lamps, couches, etc. 

With a reserve, the seller “reserves” the right to say no to the highest bidder if the price comes in lower than they can part with something.  The auctioneer this weekend said he never announces what type of auction it will be and that he’s prohibited from doing so by state law.

Here are a couple of pictures from the auction:

Though you can’t see them, we counted about 38 cars to be parked around the two homes. Because the auctioneer had two residences being offered by the same seller, they said the first highest bidder would get to select which house they wanted. And if they wanted both houses, they could have both by doubling the price. The first one went for considerably higher than the one shown in the picture because it has an inground swimming pool (with a lot of work needed since bullfrogs are the current tenants).  The first buyer opted not to buy both, so the second auction was conducted.

I was sorely tempted to raise my hand once or twice when the house across the street from me was stagnating at $80,000 (2500′ish square feet, 3-car garage, 2.5 acres, needed carpet, paint, general updating to eventually sell for $180,000). My husband warned me, “Do NOT buy a house. NO.” so I managed to keep from JUMPing in.  The house did eventually sell for approximately $123,000 (plus $20,000 for realtor fees, etc.). I’ll be anxious to see who the new neighbors are.

What the new homeowners may not realize is that they’ll be indoctrinated into Jack’s family. You see, Jack the neighborhood Jack Russell Terrier considers himself king of the ‘hood.  Sometimes if something comes up missing, we’ll call Jack’s “real” family and ask, “Did a rollerblade show up at your house?” Then we walk over and collect it.

I think Jack is excited to see a rebirth in the housing market in our neighborhood (or he’s just friendly and likes people).  I’m just as elated to be reading good news on the improving market across the country!