Foreclosed home auction makes for quick sales
A few hundred buyers watched, waited and bid as California-based Real Estate Disposition Corporation rapidly auctioned off more than 300 bank-owned homes from across the state May 17 and 18 at the Foreclosed Home Auction in the basement of a downtown Denver hotel.
"I was shaking. I felt like I was going to puke when we were bidding," said Brooke Koehler, a first-time homebuyer who purchased a 1,190-square-foot home in Golden at the auction.
The bidding on the ranch-style home started at $79,000 and ended with Koehler’s winning bid of $165,000.
During the two weekends prior to the auction many of the homes were open to the public for a quick preview before bidding.
Although REDC’s Web site encourages home inspections before the auction, would-be buyers are reluctant to pay hundreds of dollars to have a home, or multiple homes, professionally inspected when they have no way of knowing whether they’ll be the winning bidders.
Koehler and her husband had walked through the home they bought but like most bidders didn’t have it professionally inspected. Koehler said she thinks the home is in good condition.
The potential for finding problems after signing closing papers is why many of the homes sell for less than their estimated market value, said Realtor Jim Parker, who hosted an open house at one of the auctioned homes.
Banks are overwhelmed by the number of homes that have fallen into their ownership as a result of the housing crisis. In the first three months of 2008, there was a 23 percent rise in foreclosure filings compared with the first quarter of 2007. In that same time frame, 5,875 foreclosure sales occurred in Colorado, an increase of 5 percent from the same period the previous year, according to a state study [PDF]. The number of foreclosed Colorado homes sold at auction has also been steadily climbing, from 6,258 in 2003 to more than 25,000 last year, according to the same report.
"They just own too many homes," Parker said. "They want to clear [the foreclosures] out."
Cristie Drumm, a spokeswoman for Wells Fargo Bank, didn’t know if the bank had participated in REDC’s auction but said property auctions are one tool Wells Fargo uses to sell homes.
"We do sell some of our foreclosure homes through auctions," she said. "It’s a pretty effective way to reach potential homebuyers, and we’ve found that real estate auctions are a pretty good way of attracting first-time homebuyers."
They are also a means of unloading a large number of homes over a single weekend.
The potential for getting a good deal at auction enticed almost 200 home seekers to walk through a four-bedroom home that Parker was showing in southeast Aurora earlier in the month.
"This one’s in good condition," said Stacey Urbigkeit, an investor who had walked through about 15 homes on May 4, looking for potential rental properties. "Some are pretty rough."
Parker said at least half the potential purchasers at home auctions are investors.
The home the Realtor was showing in Aurora sold for $365,000 in 2003, but bidding would start at $149,000 at auction, he said — with a caveat: The bank that owns the property sets a price that must be met before it will be willing to sell. Only the bank knows how much that is, Parker added.
Marilyn Parks attended the auction hoping to find single-family homes in southeast Aurora and Parker. She hadn’t walked through any of the properties she planned to bid on but thought she could rent them until the real estate market turns around and then sell for a profit.
Parks, who already owns 10 investment properties, said she did just that in the 1980s, when she purchased a townhouse at auction.
"The market’s not good for selling, so you wouldn’t make any money today if you purchased and tried to [re]sell," she said.
And better deals can sometimes be made by buying a foreclosed home directly from a bank before it goes to auction, she said.
"There’s a point when [buying a home at auction] doesn’t make any sense because there are really good deals out there," Parks said. "It looks like it’s not that good of an opportunity."
It can also be difficult for would-be homebuyers who don’t have cash on hand to take advantage of deals at a home auction.
Buyers don’t have to be pre-approved for a home loan, and REDC has lenders on site waiting to offer winning bidders different financing options if they hadn’t already figured out their own financing. But successful bidders are required to have on auction day an earnest money deposit worth 5 percent of the purchase price or a check for $5,000, whichever is greater, according to REDC’s Web site. REDC’s spokesman could not be reached for comment
REDC also collects 5 percent of the sale price as commission, bumping every $100,000 bid on a home to a total cost of $105,000.
Nonetheless, some homebuyers were thrilled with the auction’s results.