Discounted Homes, Going, Going…
The event started an hour late. It took that long to register the crowd of 2,000 people who showed up for a big sale of foreclosed real estate on Mar. 16 at the Los Angeles Convention Center. Auctioneer Jeff Stokes, in a tuxedo and flanked by similarly dressed ringmen, got the crowd warmed up, asking attendees to raise their yellow bidding paddles—"Look at that, a sea of yellow"—and exhorting: "Who came here to buy some property today?" Lots of folks, it turned out. The event's sponsor, National Home Auction, sold 119 properties in four hours—nearly one house every two minutes.
With home prices sliding and foreclosures rising, real estate has become the fastest-growing category of auctions, according to the National Auctioneers Assn. Upscale homes are being sold in bulk. And Beverly Hills (Calif.) broker Kennedy Wilson recently auctioned homes originally priced as high as $1.4 million in tony communities such as Santa Barbara, Calif., and Scottsdale, Ariz.
For builders and bankers sitting on property they can't sell through traditional means, auctions are a way to cut losses and generate cash. "With so much inventory on the market and other builders discounting, it puts everyone in a bind," says builder Dennis Freeman, who auctioned 42 new condos in Palm Springs at an event run by Kennedy Wilson on Mar. 15.
The housing boom began with aggressive mortgage brokers, real estate speculators, and easy money on Wall Street, and it's ending on the floor of places like the L.A. Convention Center. Want a three-bedroom ranch in Bakersfield, Calif.? A duplex in San Diego? Homes there had been foreclosed on by lenders such as Citibank (C) and Wachovia. Several of these lenders had booths on site to offer loans to buyers.
To get into the hall, bidders had to show they had a $5,000 cashier's check and a personal check to make up the rest of any down payment. Winners pay an additional 5% of the purchase price to the auction house after securing financing. The company promised a 21-day close.
Buying a home at auction is not for the faint of heart. Bidding is fast and furious, and you must endure the gentle jibes of the auctioneer. ("Sir, you're quick on the draw, but you're not much for stamina.") At the Mar. 16 auction, several houses came back for sale a short while after being sold when the buyer changed his mind or couldn't get financing. For folks used to bubble pricing, there were some surprisingly deep discounts. A four-bedroom house in Palm Springs that had previously sold for $1.2 million went for $625,000. A two-bedroom cottage in Los Angeles' trendy Silver Lake neighborhood that had traded hands two years ago for $887,000 got picked up for $285,000.
Note to would-be buyers: Bank-owned properties are likely to need work. One three-bedroom Spanish-style house in Los Angeles visited before the Mar. 16 auction looked as if it had been owned by a flipper who didn't finish tiling the kitchen and bath. It fetched $375,000, less than 60% of its previous sale price.
For people priced out of the market in recent years, auctions are a shot at homeownership. Edwin Beeks, retired from the U.S. Navy after being wounded in Iraq, picked up a four-bedroom ranch house in Lancaster, Calif., with a bid of $95,000. The previous owner paid $255,000 in 2005, borrowing 95% of the purchase price from a subprime lender.