More Commercial, Residential Buyers Are Showing Up 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 temporarily, “a welcome surge in home sales points to the positive impact of the homebuyer tax credit,” while distress 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. 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, says DebtX CEO Kingsley Greenland.
Williams & Williams partnered with Auction Network to offer live residential and commercial auction events globally and offer 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 favor the onsite and online option. Most REO properties are auctioned online. Company data show 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.
Demand for 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.”
Countdown’s patent pending technology favors upfront valuations that combine appraisals, broker price opinions, and automated valuation models when determining a higher-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 and has not been tested above this limit. And at present demand for disposable lower-end properties is expected to grow as average prices continue to drop.