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When faced with having to accept an offer that’s lower than expected, sellers like to think that there will always be other buyers – and there will be. 

But will they pay the same price….or more, later?

Here’s a good example.  First the builder said they were going to auction the three model homes in a sealed-bid process, but when the offers only came in around $1,100,000, they changed their mind, and relisted them with regular list prices.  The two best are $1.3 and $1.35 million.

Their justification was that the highest sale so far at the end of the tract was $1,227,500, and they wanted to protect that buyer, plus they really weren’t that motivated because they still had the four remaining production homes to sell in the $800,000s.

So instead of selling the models today for around $1,100,000, they are going to take their chances in early spring – the classic two-in-the-bush strategy:

The “Balboa Lot” in Del Mar was purchased by Cinninati Bengal quarterback Carson Palmer, according to this article in the U-T.

The sales price was $4,400,000 ($4 million + the 10% vig), and it closed on November 4th.

The auctioneer was masterful in how he took the bid from $3,000,000 (which would have been a no sale, because the city needed $3.25 to retire a debt), to $4,000,000 in a heartbeat when there were no other bidders.  Here’s another look – the auction starts at the 3:00-mark:

Selling homes using the auction format has great promise, mostly because when they are done right, they eliminate a lot of the fluff and uncertainty.  Buyers just want to buy a good home for a decent price, and the wrong-pricing-and-wait-for-a-miracle listing program has run its course.

Auction.com is now listing homes for sale in San Diego County, and advertising their plan on television.  They are trying to appeal to everyone by combining the old I-Pay-None format with Zetabid’s online auction.

A seller pays $25 to list their home, and is scheduled to be auctioned on-line about a month later – with a secret reserve price, under which the seller is not obligated to sell.  In the meantime, they are entered onto the MLS in case any buyer wants to snap it up before the auction.  (Like most FSBOs, the MLS prices look like they are full retail.)  The on-line bidding is open for five days, and the opening bids are not published currently.

Details from their fine print:

Auction.com only charges the seller a 1% fee,  but that’s just for advertising.  If you want a “listing helper” to assist with open houses, inspections, and evaluations, then you pay another 1%. 

They state clearly that “broker is not responsible for, nor assume any obligation for open houses, lockboxes, deposits, or advising seller on the merits of offers to purchase.”

The buyer pays an additional 5% commission, or ‘premium’.  The buyer’s agents are paid 4%, and apparently Auction.com keeps the other 1%.  So they’ll receive 2% for listing input, and it’s 3% total to them if you want a helper – or 7% total commission paid.

I would guess that most sellers would rather wait for the on-line auction, rather than sell it for an attractive price beforehand – the allure of a potential bidding war is too good to pass up.  Buyers will like the convenience of an on-line auction, but won’t be giddy about tacking on a 5% premium unless their bid is already under-market.  In the end, the seller’s reserve price is likely to kill most if not all “deals”.

REDC, the regular auction company and parent of auction.com, has luck selling bank-owned homes in a hotel ballroom because those sellers are willing to sell for whatever the market will bear.  Normal individual sellers aren’t going to “give them away” which is what it would take for buyers to feel comfortable with this format.

If they could kill one of the two hurdles – either dump the reserve price or make the sellers pay the full commission, then we might have something to talk about.

The Plan 3 model across the street is included here, plus an example of why some listings are sitting:

Hopefully there will be more acceptance of using the auction format to sell houses.

All that is needed are sellers who will accept whatever price the market will bear.  Will the sellers trust that an auction would produce the same results (or better) than a traditional listing?

Another benefit of an auction is that the sellers know what day the house is going to sell, and can make plans accordingly. It’s usually inconvenient to sell your house, at least you would have some time parameters.  Then take two weekends off so we can conduct open house leading up to the auction, and on a Sunday afternoon at 1:00pm we’ll gather everyone around and see what the market will bear.

If there were sellers willing to try, I’d like to help.  If we can follow a few auctions that work so people might feel more comfortable with the process, maybe we could start something here:

Would you buy a house through an auction?

The auction format would reduce the chances of shenanigans taking place.  In today’s market, with short sales growing and manipulating agents causing more suspicion, a pure shot at buying a house would be appreciated.

I think the auction format could catch on, and with some luck become a primary resource for buyers and sellers.  It would take the right ingredients to build the trust necessary:

1. No reserve price – highest bidder buys it.  (or a low reserve to give bidders guidance)
2. Inspection report made available to all buyers.
3. Property is vacant and open 9-5 for inspection the previous two weekends, and on lockbox.
4. Open bidding where you see the competition eye-to-eye, or a sealed-bid process.
5. Seller pays 3% commission to buyer-agents, not tacked onto price as a ‘buyer’s premium’. 
6. Preferred financing available with seller buydowns.
7. Have the whole package bundled up and broadcast over the internet on Jim TV!

Include a full photo and video display on the first day of the listing, and have the entire production coordinated by an established long-time realtor with good looks and dazzling personality, and it could take off just for the entertainment value alone.  But it’s the purity that would be attractive to the those watching, and make them more comfortable with participating the following week.

You see more of them around, here’s a couple of recent examples:

For anyone who is thinking about participating in an auction, take a close look at this video.

Notice how fast the bid amounts rise, plus - how clear are you about the price?

 Here’s another youtube tour showing some of the eclectic nature of Leucadia:

For anyone looking for more information on the Nantucket offering, here’s their link:

http://www.landinterestsinc.com/property/nantucket

The deadline for offers is May 28th, which means get them in today to be safe.

 We could use some good old-fashioned market clearing – maybe this is a start?

JimG brought it up, and our friend Effective Demand has charted the increase in Bank of America foreclosure activity for Southern California – recently their number of auctions has spiked:

More auctions, more short sales, more REOs, let’s GO! 

Freddie Mac also announced today:

McLean, VA – Freddie Mac (NYSE:FRE) and New Vista today announced plans to auction hundreds of HomeSteps® REO homes to individual homebuyers in Las Vegas on April 24, 2010 and in California’s Inland Empire on April 25, 2010 in support of the federal Neighborhood Stabilization Program (NSP) and to help more first time homebuyers and owner occupants purchase these homes. HomeSteps is the real estate sales unit of Freddie Mac and markets a nationwide selection of Freddie Mac-owned homes.

Under the 2009 Neighborhood Stabilization Program, homebuyers are eligible for closing costs and down payment assistance when they buy foreclosed or abandoned homes in designated communities that were hit hard by the housing downturn. This federal assistance combined with the federal tax credit will provide the buyer with significant financial advantage in purchasing HomeSteps homes.

“Freddie Mac’s first-time homebuyer auctions in Las Vegas and in California’s Inland Empire builds on our long-standing effort to use our REO inventory to foster new opportunities for new homeowners and shows another way Freddie Mac is working to achieve the Obama Administration’s goals of stabilizing and reviving impacted communities,” said Ingrid Beckles, Senior Vice President, Default Asset Management at Freddie Mac.

“Together with today’s low mortgage rates, these April auctions will enable Las Vegas and Inland Empire families to take advantage of the unique convergence of opportunities that make HomeSteps homes exceptionally attractive values,” said Chris Bowden, vice president of HomeSteps. “Working with New Vista underscores Freddie Mac’s commitment to manage its REO inventory in a way that helps stabilize communities, fosters homeownership opportunities, and responsibly safeguards tax dollars.”

“Owner-occupants are the key to revitalizing and strengthening neighborhoods that have been hard hit by the economy,” said Jim Park, CEO of New Vista. “Working with Freddie Mac, New Vista has created a one day homebuyer event that gives first time and owner occupant buyers an exclusive opportunity to purchase HomeSteps homes. These unique events will help turn hundreds of foreclosed properties into homes for many deserving families.”

New Vista will hold open houses on April 10 and April 17 – 18 in Las Vegas and the Inland Empire so interested buyers can tour the HomeSteps homes before the April 24 and 25 auctions. Potential buyers can also find property descriptions at auction.com/.

Investors – how do you like the idea of buying mortgages that are in default?  Or once foreclosed, buying the properties direct from the seller/lender?

Here’s a link to a company doing it:

http://www.realtynotebid.com/

They’ve just gotten started in the last few months, so tread carefully, but I love the idea.  If the offering/bidding process was this simple, we’d sell more homes.

They are selling notes and properties through an internet auction.

Check out this one in rural Oceanside, out by Fallbrook:

The lender just foreclosed on this one (with a $150,000 opening bid!) so you are buying the property, not the note. 

300 Wilshire

3 br/2 ba

1,630sf

2.43 acres

Current High Bid: $145,000

Eight days left.

Here is the direct link:

http://www.realtynotebid.com/bidpage/bidpage.cfm?item_id=100021&AP=0&AB=0

Like most auctions they have a 6% buyers fee packed on top of the winning bid, but still, there could be some deals. 

If you make a bid on this or any item through their website, during the registration process they ask you how you were referred.  If you put “Jim Klinge” in the box, I’ll get a chunk of their fee – and it won’t cost you any more!

You gotta look everywhere these days!