Are bank properties worth the risk?

A couple of weeks ago, while teaching a real estate online auction class in Mankato, MN, I met a successful auctioneer from Chicago who has been in the business for over 20 years.  He does FDIC auctions of personal property as well as real estate auctions.

He shared a story with me about his first opportunity to auction a group of 100 bank owned homes in the Chicago area.  The bank would not give him a penny for marketing/advertising and ALL of the properties would be sold with reserves.

He knew the auction would require at least $100,000 in marketing to make it successful and after giving it some thought he took the chance.  He put his own $100,000 up for the marketing and prayed that the bank would have reasonable reserves and the properties would sell.  Fortunately, it was very successful and he made over $600,000 on the deal (not a bad return on his investment).

The same bank offered him more properties to auction, but this time in Detroit.  Unfortunately, this time he learned a hard lesson by losing money (essentially paying to auction those properties).  Detroit is a much different market than Chicago and a lot tougher.

I was surprised to find out that the banks are unwilling to pay any marketing money, but I can also understand why.  It was very interesting for me to think about this opportunity and wonder if I would put up that kind of money if given the same chance.  The bank has zero risk and the auctioneer has it all.

One of the big things you are advised in auction school is to not pay for the marketing out of your pocket.

What do you think, would you do it?

Want to learn more about running your own real estate auctions online?  Join our next webinar

Highest and Best - Does anyone win?

Last month I shared how a growing number of asset managers/REO agents are taking offers online.

This past week I submitted written offers for 2 different buyers on REO properties and was told by the listing agents that they received multiple offers.  They then asked for my buyers "highest and best".

When this happens, my buyers always ask if I think there are truly multiple offers or just a game the banks are playing.  I sincerely believe the listing agents are being honest, but it's hard for buyers not to be skeptical.

I advise my buyers to submit what they are willing to pay, and not get emotionally attached.  It's a numbers game for them anyway.

When my buyers get their offer accepted in the "highest and best" situation, they all want to know what the other bids were and I don't blame them.

When I started in real estate I was investor and the "highest and best" situation is why I became interested in auctions.  I much prefer to be in an open competitive situation where everyone can see the other bids.

I know my buyers would ALL prefer the auction format for these situations and I believe it would also help the banks get the best price.

Things are heading that way, it's just a matter of time.

Online only offers for REO properties - it's happening!

7 years ago when we created our online real estate auction system, I expected a much larger adoption by the asset managers at the banks to use the auction process to sell their REO (Real Estate Owned) properties (i.e. foreclosures).

Today, several asset managers do use auction companies such as REDC, Hudson & Marshall, Williams & Williams, etc to move some of their inventory.  However, the majority of the REO inventory is still being sold through the MLS.

Well, last week, I got really excited because I came across some REO agents in my market that are making a change.

A few REO agents have made it mandatory that offers for their listings be submitted online.  Not only that, but in the 3 examples I saw, each agent had a different system.  One of the systems told the amount of the highest offer, while the others just showed the number of offers.

So, it's finally happening.  A growing number of asset managers/REO agents are adopting technology to make it easier to handle offers on their properties.

Unfortunately, there is still a BIG piece missing.  There is no sense of urgency, no deadline for submission (timed auction), it's just wide open.  The bank will take offers until they get one they like (I guess).

I'm grateful that they are starting to take offers online, and I just hope it won't be too much longer before they realize the benefits of doing it in a timed/auction format to create the urgency and get the best price for the banks.

Interested in learning about using online auctions in your market?  Join us this Thursday

How many price reductions does it take?

 

The most common way to sell real estate in the U.S. is by listing it in MLS and then, if it doesn't get any interest, begin to drop the price until a buyer makes an acceptable offer (see above).

Most real estate agents don't realize that this method of selling is actually a type of auction.  It's called a dutch auction, just done very slowly.

By definition in Wikipedia, a Dutch auction is a type of auction where the auctioneer begins with a high asking price which is lowered until some participant is willing to accept the auctioneer's price.

So, since real estate agents are already using one type of auction, why not try a more traditional auction?  An auction where you open bidding to a group of interested buyers and let them compete against each other to determine the market value. It can be done much faster and is a much more exciting way to sell real estate.

The traditional auction puts you in control. You determine when the property is open for viewing, you control when the bidding will end and the seller decides whether they will accept the highest bid.

With the glut of inventory available in many markets, auctions are gaining momentum and by using the internet, you don't need to coordinate a "live" event, all the bidding can be done online.

Not sure how you can do it in your market? Join us Thursday for our next online auction training session.

Have you been involved in HUD sealed bid auctions?

Last month, I sold my first house as buyer agent for a buyer of a HUD property in my area of St. Louis, MO

HUD homes in St. Louis are sold through an online "sealed bid" process and in case you're not familiar with it or it's different in your area, I thought I'd share some observations of the process.

1. There are no pre-qualifications for bidding, but only HUD registered agents can place bids for their buyers. Before you place a bid, you need to make sure your buyer can close.

2. Owner-Occupants have the first opportunity to buy these homes and if not sold within 30 days they open it up to investors. I primarily work with investors and seeing the condition of some of these homes, I don't understand why they make the "Owner-Occupant" period so long. Many of these can only be purchased with cash and even if they have the cash very few "Owner-Occupants" want to take on such a huge project.

3. Once the initial bidding period is over (usually 10 days) bids are reviewed daily. However, there is very little feedback, you simply get an email that it was rejected or accepted.

4. Sometimes, several days (or weeks) after a bid has been placed HUD sends an email to let you know their "minimum bid" that they will accept. This is the only part of the process I thought was helpful, and it doesn't happen for every property. It seems they only use this when they start getting motivated.

5. If your bid is accepted, you have 2 business days to sign all the paperwork (lots of it) and get it to the out of state office handling the closing. If you don't get the paperwork on time or you don't fill it out correctly, they cancel the bid and it goes back on the market. We had this happen and it's not fun. We had to submit the bid again, fill out all the paperwork again and pay to FED-EX again (won't make this mistake twice). HUD is not at all flexible with their process, make sure you read everything at least twice and review all the places needed for signature several times so you don't miss anything.

6. It took the entire 45 days that they gave us to close. My buyer was a cash buyer and could have closed in a week or less. I'm use to working on regular REO's and we've closed them in as little as 10 days after having an accepted contract. This was frustrating to have to wait until the very last day to close it. And, oh yeah, it takes a week to get your commission check after it closes.

After going through this process, I still prefer the "open bid" process where everyone knows the current high bid. However, we did build the "sealed bid" functionality into the online real estate auction system we designed so our customers have that option. We only have a couple customers using it and so it will be a while before I can determine the difference in success rates, but I'll be watching.

If you're interested in seeing how real estate agents & auctioneers are using online bidding for their own listings, join our next webinar on October 20th at 2 pm EST

An Online Auction Creates 3 Opporunities to Sell

Today I wanted to share a strategy I use that creates 3 opportunities to get a property under contract during an online auction process.

Here they are...

1st opportunity (Pre-bidding): Instead of letting people bid on the property as soon as it goes online, you can advertise it in a "preview" mode before bidding opens. By having it in "preview" mode for 7-10 days before opening the bidding, you create the urgency for buyers to submit a written offer and get it under contract so they don't have to compete. The seller can accept a pre-bidding offer and cancel the auction before online bidding even opens.

This actually happens about 20% of the time. I had an auction once where we got a written offer the first day I put the auction sign out. It turned out the buyer had seen the home when it was previously listed and finally got motivated to do something when he saw it go to auction. In this example, the seller agreed upon a price and we canceled the auction. By far, this was the easiest sale I've ever had.

2nd opportunity (Online bidding): This is the most obvious. At the end of the online auction, the high bidder puts the property under contract per the terms of the auction.

3rd opportunity (Post auction): If for some reason, the bidding doesn't meet the seller's reserve price, the auction process will have produced a list of buyer leads interested in the property. You can contact all of them, let them know the situation and give them the chance to submit their highest and best offer.

From my experience, using these 3 opportunities as part of your online auction strategy will help increase your success rate.

If you'd like to learn more about using online real estate auctions join us September 8th at 2 pm EST

Still using slow dutch auctions to sell your listings?

Currently, the most common way to sell real estate in the U.S. is by listing it in MLS and then continuing to drop the price until a buyer makes an acceptable offer (see above).

Most real estate agents don't realize this is an auction, a dutch auction - just done very slowly.

By definition in Wikipedia, a Dutch auction is a type of auction where the auctioneer begins with a high asking price which is lowered until some participant is willing to accept the auctioneer's price.

Since you're already doing a type of auction, why not try a traditional auction where you open bidding to a group of interested buyers and let them determine the market value. It can be done much faster and is a much more exciting way to sell real estate.

The traditional auction puts you in control. You determine when the property is open for viewing, you control when the bidding will end and the seller decides whether they will accept the highest bid.

With the glut of inventory available in many markets, auctions are gaining momentum and by using the internet, you don't need to coordinate a "live" event, all bidding is done online.

Not sure how? Join us on our next upcoming online auction training session.