Foreclosure auction frenzy

[lniles]

http://www.signonsandiego.com/news/metro/20070513-9999-1m13auction.html

It looks like they made a big party out of it.

[an]

Wow, I feel sorry for that couple. I guess it went back for the 2nd or 3rd time after I left. The first time around, it was sold for $210k, 22% below the $270k previously valued #. If they truly paid $288k for it, after 5% fee, it’s $302k. Considering they couldn’t sell it for $270k before, I wonder why this couple think $302k is a fair price?

[no_such_reality]

What else are they going to say? Wow we caught up in the moment and over-bid?

I probably would have turned around at seeing the line up to get in. Frankly, if there are 1200 bidders there, that’s enough potential buyers to snap up half of San Diego’s monthly resale volume on a single morning.

You’re not going to get a better than market price in that environment, you’ve got 1200 potential buyers competing for a roughly 90 homes.

Frankly, given those ratios, I’m surprised they went as low as they did. It really tells you how weak the market is and soft prices are, they need to create that level of competition and hype to get it sold near market.

It also tells us how quickly buyers will come out if a home is noticeably below comps.

[Bugs]

“I probably would have turned around at seeing the line up to get in. Frankly, if there are 1200 bidders there, that’s enough potential buyers to snap up half of San Diego’s monthly resale volume on a single morning. ”

I wish I’d said that. Even if only half of them are serious there’s still way too much competition for the limited number of opportunities.

It’ll be interesting to see what the turnouts are like in the months ahead. Surely some of the 1200 were just there to see what would happen. Given the resulting sale prices many of these casual observers probably won’t be back for a while. That’s not to say they won’t be replaced by an equal or possibly high noumber of other casual lookers in the future.

Considering the resulting sale prices, if the number of attendees go up that could indicate that a lot of people think the current conditions are a breather prior to the next big upswing. If the numbers go down, it would indicate that many of these people will only buy at a steep discount.

[sdrealtor]

I just spoke with a very experienced REO guy who went to the auction and stayed for the whole thing. He had researched every property and had a realistic expectation of what they would sell for in the current market. He was also sitting with clients from the major lenders who owned the properties. here’s his take:

The lenders were NOT HAPPY with the prices they got and were testing this out. Doing it again is not a given for them.

In many cases, the prices they got at auction were about 5 to 20% below what the REO guy felt he could have sold them for on the open market. We went over several and he said they left 25K to 75K on the table in those cases.

With the 5% buyers premium, the buyers didnt get huge bargains either.

[no_such_reality]

In many cases, the prices they got at auction were about 5 to 20% below what the REO guy felt he could have sold them for on the open market. We went over several and he said they left 25K to 75K on the table in those cases.

My jaw is on the floor.

We must be missing numbers, did pricing drop significantly after the first few? Or is the REO guy in denial of the market? If they left 25-75K on the table, the homes profiled in another thread would have sold be selling at or above previous sales price?

[sdrealtor]

Hes defintely not in denial of the market though I suspect he doesnt like the auction thing because it competes with what he does. Here’s an example of what he said. A condo coversion in UTC on Nobel sold for $240K (this is from my foggy memory so i could be off a little) and the builder is selling them for $310K.

Remember, to us $25,000 isnt nearly enough for them to drop from current market rates but from the bank’s perspective it could be an unecessary $25,000 loss which is real money to them.

[SD Realtor]

SDR I am puzzled because many of these properties at the auction WERE listed on the MLS, some for significant amounts of time. So I guess he was saying they should have tried relisting them at less then what they were previously listed at, but more then what they sold for at the auction.

SD Realtor

[no_such_reality]

okay, that makes sense, if you’re going to liquidate for 20% off, as long as the place isn’t trashed, they can do that themselves.

On some they made out, on others they could have done it themselves, but overall for their fees, it sounds like they feel they came up short compared to a quick sales price themselves.

I could see the bank looking at it going, if we threw it up for $250K, it would have been gone and we would net more money.

That’s good. Because next time, maybe they’ll put it directly on the market for $265K and it won’t take too many of those to turn the tide of psychology in the market.

[sdrealtor]

SD R,
I’m just relaying what I heard. I think part of it was him being territorial if you know what I mean. Some of the ones on the mls were up as short sales for a while but then as REO’s for a short time.

I think the real message I take from our conversation was that this was truly a marketing gimmick as I hypothesized a few weeks ago. From what I understand, the auction was very expensive for the lenders and their hope was that with all the exposure they could unload them for full retail and maybe even get lucky on some above retail.

sdr

[lindismith]

WSJ has a nice article about it:

http://online.wsj.com/article/SB117910010258001458.html?mod=home_whats_news_us

“A four-bedroom home in Oceanside, Calif., attracted a high bid of $495,000 at the auction, 33% below the sale price recorded in November 2005 for the property. One condo in San Diego sold for $120,000, less than half of its previous value.”

[The-Shoveler]

Nor_LA-Temcu-SD-Guy

“The lenders were NOT HAPPY with the prices they got and were testing this out. Doing it again is not a given for them.”

I was not happy with the prices either but for a different reason..

Maybe those lenders are just trying to put a good face on a bad lending (Bad business) decision ??

after all they got to find some way to pass the buck, Could not be that they just lent too much out for too little RE .

[ucodegen]

I suspect another part of the banks dis-satisfaction, is that they were hoping that the auction would create enough ‘frenzy’ to be able to offload the houses at or real near comps. When that didn’t happen, it may have caused them to realize that they are going to lose some skin in this game, possibly a lot of skin. This auction is just the start of the houses they are going to have to be dealing with and unloading.

[no_such_reality]

I’ve been percolating on this. I suspect they’ve lost a lot a skin.

The massive media campaign, the auction set-up, rumors that some of the homes were touched up, my guess is that was all paid up front from the lenders.

They’ve already done the foreclosure process, so that’s sunk money, now they get the net of the bid (the 5% buyer’s premium goes to the auctioneer). Subtract commissions, overhead of the media campaign and other up front costs and I’d guess they lost another 10% maybe more.

Look at sdr’s condo example and with a bid of $240, they may only be bringing $210 home. For a place that isn’t trashed, that’s a step discount from $310. If they’d have blown it straight out, at $250K, they’d have brought $242k home themselves.

[barnaby33]

I just spoke with a very experienced REO guy who went to the auction and stayed for the whole thing. He had researched every property and had a realistic expectation of what they would sell for in the current market.
sdrealtor, your friend sounds like he is full of shit. If the houses could have been sold through the retail channel at anywhere near retail prices, they would have been.

The reason banks don’t like auctions is that they are an admission of failure. They are just a very quick accurate way to see how big or small that failure is. I understand why they weren’t happy and may not want to do this again. I just don’t think that:

• prices are going to improve with the number of comingforeclosures coming.
• Banks are going to have much choice. Once regulators start saying, “your balance sheet looks like ass,” banks start selling. This may take a while to foment.

Josh

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