Are the banks doing sealed bid auctions

I just noticed a new trend with bank foreclosures in my St. Louis market, maybe you've noticed it in your market?

When a foreclosed property first comes on the market, the listing agent puts in the agent remarks that no offers will be reviewed for the first 7 days.

As you can guess, the goal is to get multiple buyers competing in a "highest & best" situation and I don't think it's a bad strategy.  It creates the urgency and competition that can help the bank get the best price.

In thinking about it, I realized this is exactly how a "sealed bid" auction works.  It may be a little less structured, but the concept is the same.  Get as many buyers competing before a given deadline to produce the best price for the seller.

As always, every time I see sellers moving towards the "auction" concept to sell, no matter in what form, I'm grateful.  It truly is the best way to market and sell real estate.

$16,500 over list price is not enough?

This past week I was shocked by what happened with a bid my buyer made on a HUD owned home.

In case you're not familiar with the HUD bid process.  There is a website www.hudhomestore.com where HUD registered brokers can submit "sealed bids" for their buyers.  Typically only owner occupants can bid on HUD owned homes for the first few weeks.  If, after the owner occupant bid period ends, HUD has not accepted a bid, it then opens up to all bidders - investors included.

Well, my buyer is an owner occupant and in the construction/rehab business so he was looking for something that needed work but was in a good location with good resale potential (Owner-occupants need to live in the property 12 months before they can "flip" to a new owner).  We found, what we thought, was the perfect property.  It needed about $25-30K of work, wasn't move-in-ready, only open to "owner occupants" and was priced fair.  In addition, it was a split-level home which is not in as high demand for the area it is located.

So, when my buyer wanted to offer $16,500 over list price, I thought he was crazy.  But, he had made a few offers on other bank owned properties and was out bid, so I understood where he was coming from. I still felt his bid was way higher than it had to be, but he really wanted this house and after I looked at the numbers again, I realized $16,500 over list price was still an okay deal for him.

So, I submitted his bid before the deadline and was absolutely shocked the next morning when I found that HUD had accepted a higher bid.  Are you kidding me?  What is going on?  I couldn't believe it!

My buyer was understandably frustrated.  He was willing to bid higher, maybe even higher than the bid HUD accepted.

These experiences always make me appreciate, even more, the open online bidding process.  What a luxury for a buyer (and their agent) to know what the current bid is and to have the control to increase their bid and buy the property.  I can't wait until the open online bidding process becomes more common place.   Any chance HUD would ever change to an "open bid" process?  I won't hold my breath.

On a another note - I learned that if the buyer of a HUD home is planning to use FHA financing to purchase, the list price (FHA appraisal) is the appraisal that is used for the new FHA loan.  That means that if your buyer bids over list price, they have to come up with the difference in cash at closing.  Found that out the hard way after my buyer finally won a bid over list price on another property.

Even Kenny Rogers is selling via auction

As most of you know, I stay "tuned-in" to what's happening with real estate auctions across the country.

One of the more interesting things taking place is the number of celebrities & professional athletes that are turning to auctions to sell their real estate.  The most recent is Country Legend Kenny Rogers who is selling his home in Athens, GA via Absolute Auction on June 26th

It makes sense for several reasons:

1. Equity - They either own their property free & clear or they have pretty good equity and can let it go at a "discount".
   
2. Public Interest - As a celebrity, the public takes notice and it's even easier to market one of their auctions.  After all, who wouldn't want to own Kenny Rogers home.
   
3. Why wait - As you know an auction accelerates a sale, especially important if you're a professional athlete that's been traded to another team.
   
4. Absolute -  Along with having equity, many celebrities are selling absolute (like Kenny) with no minimium bid, helping entice bidders even more with the possibility of a "steal".

Here is the link, in case your interested in learning more or even attending Kenny Rogers ABSOLUTE Auction

Have you been watching Auction.com?

 As most of you know, I always have an eye on REDC (Auction.com).

They are the undisputed leader for real estate auctions and especially with their "online only" auctions.  I haven't found any other company that comes close to the volume of sales they do.

REDC is still selling primarily bank owned real estate but I've noticed 3 new variations show up in the last couple of months.

1. Short sales - They now have auctions for properties where the lender is willing to take a "short" on the amount owed in order to avoid foreclosing.  This is a great use of an auction and something our customers have done for a while.  However, the short sale process can take a while and that increases the chance that buyer won't wait around to close.
   
2. Still Occupied - I've also noticed auctions for properties where they are "occupied" and that it will be the buyer's responsibility for evicting the owner.  So, not only is the buyer prevented from seeing the property before they bid, they have the fun job of getting the owner out after they buy it.  I've talked to a few investors about this, and not one of them was interested in bidding on something like that.  I'm surprised that they are finding any buyers for these.
   
3. Luxuy homes - I've also seen a few press releases anouncing the successful sale of multi-million dollar homes through REDC online only auctions.  This proves once again that auctions are not just for distressed properties.

Seeing these new additions to REDC's auctions, is just another indicator to me of where real estate in the U.S. is heading.

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