More Sellers Turn to Real Estate Auctions; Results Often Aren’t Worthwhile
Auctioneer Perry Diamond stood on the pool deck of the historic home in West Palm Beach’s Flamingo Park and barked into his microphone.
“Looking for $600,000, do I have $550,000? $550,000? $500,000? Let’s kick it in at $500,000,” said Diamond.
Two dozen people sat before him, but no one budged.
“The auction is today. You’re going to buy it today, or it’s going to go back to the seller,” Diamond urged.
Still nothing.
Nevertheless, after 70 seconds of banter, Diamond declared that he had a $500,000 bid for a home that once listed for as much as $725,000.
“We can consider it sold subject to seller’s confirmation,” he said.
But there was no bid for the seller, John Neuharth to confirm. The personal trainer in West Palm Beach waited out the auction at a friend’s house, and two days later he said he was still confused about what happened.
Amid a slow South Florida housing market for home sales and a growing glut of properties, frustrated sellers increasingly are turning to auctions in search of quick transactions. Auctioneers hype the process as a way to build buzz and move homes in a moribund market.
But as the failed example above shows, auctions offer no magic solution.
BUYERS CALL THE SHOTS
First and foremost, no amount of breathless banter can motivate buyers who don’t want to buy. Moreover, the nuances of auctions are lost on buyers and sellers who aren’t familiar with the process.
Real estate auctions have yet to lose the stigma of a vehicle for unloading foreclosure properties and other less-than-desirable homes.
The latest home sales figures from the Florida Association of Realtors last week show that even the most steadfast residential real estate bull is going to have a hard time denying the bear is in the house. An auction may be a clever gimmick, but if the Florida mortgage costs don’t add up, the house isn’t going anywhere.
After soaring to $400,000 in September 2005 during an unprecedented five-year real estate boom, the median price of an existing home in Palm Beach County plunged to $365,500 last month, a 9 percent year-over-year drop. It tied with the Treasure Coast for the third-largest drop in the state.
Buyers are officially calling the shots.
SELLERS ABSORB MARKETING COSTS
The shifting dynamics have led to thousands of frustrated sellers such as Neuharth, looking at everything from auctions to value-range pricing.
Neuharth quickly learned a key difference between auctions and traditional sales. In auctions, sellers pay their own marketing costs (he spent $10,000 on newspaper ads). In traditional sales, Realtors bear those expenses.
In the above case, it did little good. Sometimes a great selling strategy can only go so far. Shortly after he declared the property sold, Diamond acknowledged there was no sale.
“Sometimes you want to cry. Let me introduce you to one of those times,” Diamond said while standing in Neuharth’s dining room.
It’s not uncommon for an auctioneer in a reserve auction to make a bid on behalf of the seller, and Diamond said he declared the home sold simply to save face for the seller.
But the seller was upset that his auctioneer went ahead with an auction when only one bidder showed up with the requisite check for $25,000. Neuharth also didn’t understand why the auctioneer proclaimed his home sold, leaving Realtors at the auction with the impression that the house was off the market.
“I am not pleased. There shouldn’t have been an auction because there was only one registered bidder. This is so new to people, and there’s a lot of confusion,” Neuharth said.
DEGREES OF RISK VARY
For now, the hype and expectations have outpaced the reality of auctioning homes in a slow market. Neuharth’s home was offered in a reserve auction, a type of sale that’s the least risky to sellers but also the least likely to lure bidders into making an offer. That’s because there’s a magic number that seller and auctioneer have in mind — and don’t share with bidders.
Sellers who want to strike a middle ground can try a “minimum-bid auction,” which is the route chose by Robert Bono, who plans to auction his home next month.
The minimum bid is $269,900, a little more than half the home’s listing price of $515,000.
“It’s a little frightening. The downside is that you don’t know exactly what it’s going to sell for. Theoretically, it can sell for the minimum opening bid,” Bono said.
Still, he hopes the auction nets him a quicker sale and gets him out from under his Florida mortgage loan on the house, an investment property that — as of right now — is producing no income.
“Listing it on the multiple listing service is going to make it one of thousands. And I don’t have a tenant in there, so it’s costing me $3,000 a month,” Bono said.
But his prospects are iffy at best. You just can’t sway large-scale market influences, and too many buyers are still priced out of this market, even with slashed auction deals. Bono is one of what some Miami real estate experts say will be a growing number of home sellers choosing auctions in today’s sluggish market. But will it pay dividends for him?
