Why Auctions Attract Buyers and Sellers Alike

Some REO market insiders claim house auctions are increasingly appealing to both buyers and sellers. The romance, they say, certainly is not in the entertaining nature of the process, which includes almost undecipherable fast-talking, or sale immediacy.

"Being efficient is the key part," said Monte Lowderman, the Williams & Williams auctioneer hosting a bid in Montclair, N.J. "It's a win-win for everybody."

In some areas the auction may save the seller money and in other areas it may cost more because of marketing and commission costs, he said. All marketing costs are depicted upon the property, but in the end, auction sales cost the seller less. "At Williams & Williams, auctions are five times more efficient if compared to the list-and-wait method and the average cost. That's because we're dealing with a timeframe that can be 35 days, while the average sale property can be on the market for an average of 180 days. It saves a lot of time and a lot of those holding costs."

The process is more or less the same, yet the marketplace may vary. For instance, one may not know what to expect when attending a random REO auction in a nice suburb like Montclair, about a 45-minute train ride from Manhattan. The market is not at its peak. It is a buyer's market, however, and homebuyers nationwide keep shopping for a bargain.

A crowd of about 40 people showed up at 59 Elm St. to bid on the three-story, multifamily classic Victorian home built in 1902. A quick look at the property confirmed what the auction sheet suggested: great potential. It meant the future owner would have to invest thousands of dollars before the four units would be ready to rent out and/or live in. Given that as a rule so-called REO properties require some repair investment funds, auctions appear to be one of the most cost-effective ways to purchase them. It also is an efficient way to help REO asset managers return these properties to the marketplace.

According to research data by Tulsa, Okla.-based Williams & Williams, time and cost efficiency for non-speculative sellers is at about 25% to 40% of the property value.

According to Mr. Lowderman both sellers and buyers benefit from an auction sale. "It is non-speculative for the buyer. He is able to determine the value of the property. He does not have somebody telling him this property is worth such and such. He is part of the process."

As to the fact that often properties are sold "as is" Mr. Lowderman said buyers can find ways to appraise a property. "If we know something about the property we have to disclose it." By that however he means legally binding information. So to avoid misconceptions buyers can hire an independent appraiser. (In Montclair, the bid started at $50,000 and the property sold for $800,000.)

"These houses are open usually two to three Sundays before the auction date so potential buyers can come in and check the property out," he said. "Auctions are becoming more and more acceptable," he said. " There's no denying the REO side of our business has grown especially during the past several years." (c) 2007 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com