Today, another one of these auctions too place at the San Mateo
County Event Center, this one run by the same company mentioned in the article below, Real Estate Disposition Corp. These auctions are huge. The room I was in was around 40 rows deep and 30 seats wide, and with the few empty seats I saw I bet there were 1000 people in the same room as me, which also had at least 20 employees of the auction house. (my favorite of whom was who I'll call a 'bid relay', or perhaps 'bid shouter' named JJ, the spitting image of a young John Malkovitch). And there were at least 3 other big rooms where people taking place via simulcast! Why else would they need this many coffee creamers?Here's a look at what one of the two hundred or so auctions today looked like (look for JJ):
Given my interest in real estate, I was paying close attention to the opening and winning bid amounts. Of the 53 auctions I watched that had 'Previously Valued To' values, the average opening bid was $144k, and average 'previous value' was $529k, and the average winning bid was $274k. In other words, the final bid was, on average approximately double the opening bid, and yet was still only a shade over 50% of what the auctioneers asserted the house was previously valued at. You can take a look at the data for the auctions I witnessed if you like.
Some of the questions on my mind as I watched the circus were:
- Which of the auctions did not reach the undisclosed reserve price? From the looks of it, almost half of the auctions that were completed by the time I left were 'Under Contract', presumably above the lenders' reserve prices.
- Will these sales make it into Zillow as sales? Or, were the trustee sales that preceded these auctions already on Zillow.
- What relation to the 'Previously Valued To' values have to Zestimates, or prior sales, or prior assessments?
Even during a drenching rainstorm two weeks ago, more than 30 groups of potential buyers toured an 814-square-foot condominium in West San Jose, seemingly defying conventional wisdom about the sluggish real estate market.
But it wasn't a normal open house; in fact, visitors had to tread warily through the darkened property on Weyburn Lane because the electricity had been turned off. The two-bedroom condo is one of about 150 bank-repossessed Bay Area properties that will be auctioned Saturday in San Mateo.
As foreclosures have soared in California, large auctions of bank-owned properties are becoming more frequent. Saturday's is the third in the Bay Area in recent months, and similar auctions have occurred in Sacramento and Modesto.
Beginning at 9:30 a.m. at the San Mateo County Event Center, dozens of homes ranging from small condos to a five-bedroom house on five acres will be sold to the highest bidders after they hand over 5 percent of the purchase price and sign binding contracts on the spot.
"Everybody thinks they're going to get a hell of a deal," said Rob Roham, owner of ReMax Advisors in San Jose, who prepared the Weyburn Lane condo for the auction.
Bidding for the two-bedroom property will start at $219,000, according to Real Estate Disposition Corp., the company administering the auction. But the property is probably worth about $400,000, Roham said, adding that he doubts people will find the deep discounts they dream of when they read the "opening bid" prices.
Limits on discounts
Lenders do have undisclosed "reserve" prices below which they won't sell, said REDC executive Michael Schack.
He said many properties the company has sold this year have gone for 20 to 30 percent less than the "previously valued to" prices listed in the company's catalog and on its Web site (www.ushomeauction.com). Those prices are typically based on the most recent sales price or a recent appraisal, he said.
When home buyers stop making mortgage payments and lenders foreclose, the properties often are auctioned off first on courthouse steps or at another public venue. Bidding may start at an amount equal to the balance on the first mortgage. If no one buys, ownership reverts to the lenders. Lenders typically hire realty agents to fix up the properties minimally and list them for sale. Another tactic is to employ auction houses such as REDC.
Between 1,500 and 2,000 people are expected to attend Saturday's auction, Schack said. Many will be merely curious with no plans to bid. In case of an overflow of looky-loos, a separate room with a video screen will be available for watching the auction, he
Schack said bidders fit many profiles. Some seek investment properties, some want a house or condo to live in or move a family member into, and others are trying for a duplex so they can live in one unit and rent the other.
San Jose resident and real estate investor Sean Cervantes plans to attend and bid on a four-bedroom San Jose house he previously tried to buy from the lender-owner for $675,000 several weeks ago. Cervantes said it appeared the lender would agree, but then he was told the house would be sold at auction instead.
He's curious to see whether he'll be able to get the home for less at auction than he offered previously, and whether other properties get sold at a discount.
"If it's really going to be a legit thing where they're going to cut them loose, I'll be ready" to buy more at auction in the future, he said.
Residents long gone
He's bought foreclosed homes on the courthouse steps before, but said buying at a post-foreclosure auction appeals to him more because "I don't want to throw someone out of their house, so I'd much rather buy them from the banks."
Prior to the auction of bank-owned homes - known as REOs, or "real estate owned," in the industry - the lenders have cleared out tenants or previous owners, cleaned up the properties and obtained a preliminary title report, which should document liens against the property, for example. Courthouse-steps buyers don't get these perks beforehand.
In addition, open houses were held for three weekend days in September at the REO properties to be auctioned Saturday, giving prospective buyers a chance to scrutinize the properties, another opportunity seldom available at the initial foreclosure sale.
Bidders at the auction need a $5,000 cashier's check and the financial ability to write a check equal to the balance of 5 percent of the purchase price. Winning bidders are charged a 5 percent "buyer's premium" atop their successful bids. Financing is available on-site, or buyers can bring their own pre-approved financing.
Goal: highest price
Clearly, some buyers get bargains at REO auctions, said Sean O'Toole, founder of ForeclosureRadar, a company in Discovery Bay that sells foreclosure information to subscribers. But the primary goal of the auction house is to get the highest price for its lender clients.
"A competitive bidding environment should increase the lender's chances of getting a good price," O'Toole said.
There are many reasons homeowners wind up in foreclosure, including illness and divorce. But a more common reason these days is that the owners bought at the peak of the market a few years ago with an adjustable-rate mortgage and little money down, then couldn't afford their rising payments and couldn't refinance because they lacked sufficient equity or high enough credit scores. Other owners may have refinanced to take equity out of their homes, then owed more than the home was worth once values began to decline.
Roham said many potential bidders who toured the Weyburn Lane condo last month asked about the circumstances of the foreclosure.
"Everyone was interested in what happened," he said. "All we know is that they didn't make the payments."
Contact Sue McAllister at smcallister@mercurynews.com or (408) 920-5833.
