Now, More Commercial RE, Residential Buyers Online

Sellers of distressed commercial and residential properties taking advantage of online auctions are finding the medium is more attractive to individual buyers than to investors who continue to sit on the sidelines.

Williams & Williams senior vice president of marketing, Amy Bates, told this publication that while "distressed residential sellers are interested in reaching the broadest possible audience" they prefer end-user buyers. At least buyers using Williams & Williams' "Live from the Lawn" multiplatform auctions are not letting them down. Up to 75% of them are owner occupants of properties ranging in sizes from small to medium to high end. (To put things into perspective, Williams & Williams sells over $1 billion in residential, commercial, farms and ranches, and luxury estates annually.) The remaining 25% typically are investors with various interests in both residential and commercial assets, Bates said. "For the REO market specifically, the investors may be 'flippers' or they may be opportunists looking to rent the property out to new tenants."

So more often than not, the same American dream of homeownership that pushed many into wearing their finances too thin is now motivating new buyers and bringing back some stability to the market. Fannie Mae's May 2010 Economic Outlook suggests that albeit temporary, "a welcome surge in home sales points to the positive impact of the homebuyer tax credit," while distressed sales remain key to speeding up the housing market recovery.

And buyers of such properties are showing up online at real estate auction and collateral risk management sites large and small indicating growing interest in auction deals.

Bidders rushed to participate in a Department of Housing and Urban Development auction of $306 million in nonperforming multifamily and health care HUD loans that ultimately generated proceeds equal to almost half their unpaid balance.

HUD's exclusive loan sale advisor KDX Ventures-a joint venture between boutique investment banking firm KEMA Advisors of Hillsborough, N.C., and international online marketplace, DebtX of Boston-reported that 67 bidders submitted over 200 individual and pool bids for the 26 assets offered for sale in April.

Executives said the 12 winning bids submitted on individual assets generated proceeds of over 48% of unpaid principal balance demonstrating "the pent-up demand and liquidity for commercial real estate assets."

DebtX, which has offices in Atlanta, New York, San Francisco, London, Madrid and Frankfurt, offers full-service loan sale advisory services for commercial, consumer and specialty finance debt for over 300 selling institutions, including government-sponsored enterprises. According to DebtX CEO Kingsley Greenland, even though over the past two years "investors have amassed a tremendous amount of capital to invest in commercial real estate loans," there has been only a small amount of product available for sale.

Williams & Williams partnered with Auction Network to offer live residential and commercial auction events globally that allow for real time bidding in person, online, over the phone and even while watching television. A company spokesperson said sellers from all sides of the real estate spectrum see a competitive advantage in combining online with in person auctions. Bidders of up to 69% of the properties auctioned take advantage of the onsite and online option.

Company data show so far this year 20% of auctioned properties were sold to an online buyer and a 9% lift in hammer price. These online buyers and investors are domestic and foreign from the Middle East, Europe and other parts of the world.

At Williams & Williams most REO properties are auctioned online.

Demand for REOs and expedited processing of small to midsize residential mortgage asset sales is hurrying sellers to new auction firms as well.

Jim Hodson, CEO of Countdown To Buy, a real estate auction website he founded only one year ago, says that barely five months after its launch in December 2009 Countdown has expanded operations in 18 states and is in negotiations with some of the country's largest lenders who have signed up or are pilot-testing the auction site.

Hodson told this publication that to date the company has matched 20 properties on an average of 11 days on the market "at prices that are very competitive with fair market," exceeding institutions' expectations. Clients are coming back to test different market spaces and scenarios, he says, as buyer and seller strategies change along with the market. Properties about to sell as short sales and new additions to the real estate-owned homes in major metropolitan areas are a "hot sale."

"I challenge the market to keep up with us. We get to an 11-day match and close just a couple of weeks after," says Hodson.

Countdown's patent pending technology favors upfront valuations that combine an appraisal, a broker price opinion, and an automated valuation model when determining the upper and the lower price limit. It helps reduce fall-out and allows sellers to get the higher price if there is market demand, but automatically minimize loss if demand is weak.

After the property has been on the market for 10 days the price is reduced 1% daily within that range.

Hodson says the Countdown model has proved successful in trading assets up to $500,000. The company has "not tested above this limit," he adds, but is looking forward to it.

And demand for disposable lower-end properties is expected to grow. The average property price has continued to drop to the present $170,000, which is within the Countdown range even though the lower price range in Minnesota may be $20,000, compared to $200,000 in the Northeast.

The platform was designed to offer a fair trade, but not necessarily with REOs in mind, Hodson says, so it covers "a wide spectrum," including short sales.

However, Countdown's top clients are some of the country's top REO holders. One such seller disposed in 18 different states lower-end properties aged by 90-120 days or more moving them out of the market at a price very close to their last price list. Another client he would not name that manages an inventory of 25,000 REO assets at any given time, mostly on the East and West Coasts, is pilot-testing the Countdown method.

A new pilot program will bring to the market recently foreclosed properties from 17 communities in Georgia ranging in price from $20,000 to $288,000, where the lowest-priced homes sold "as is."

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