PASADENA, Calif. – 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 comps for the two-bedroom, 21/2-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 many people 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 said.
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.
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 percent from $11.5 billion in 2003, according to estimates reported by the National Auctioneers Association, an auctioneering trade group.
The two most well known types of auctions are “open outcry,” in which an auctioneer calls out 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.
Some open-outcry auctions also permit bidding by telephone, proxy and Webcast.
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.
On the downside, properties that are not aggressively marketed by auction companies may result in just a few low-ball offers.
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 percent to 10 percent of the sale price and generally can be rolled into the mortgage. Listing brokers usually get 2 percent to 2.5 percent; the auction companies get 8 percent. 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 31/2 years ago for less than $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.”
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.
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.”
Talk to us
> Give us your news tips.
> Send us a letter to the editor.
> More Herald contact information.
