Home Bargains on the Auction Block


Don't like the back-and-forth bickering involved in home buying? Maybe you'll buy your next home with just a quick back and forth wave.

More homes are being auctioned than ever, with some $16.9 billion sold by private auction houses last year. That's not counting the foreclosed properties sold at sheriff auctions.

That's still a tiny slice of residential sales, but auction houses are anticipating residential sales could boom soon.

Bailout boon for auctions?
With the $700 billion bailout bill, the federal government has entered the home loan business in a big way, and will inherit lots of REO properties.

"REO" is lender lingo for "real estate owned," and refers to the homes that banking companies own after they're not sold at a foreclosure auction.

Indeed, when a foreclosure is finalized, a public auction is held. Professional investors, not ordinary homebuyers, tend to be the purchasers at these public, or sheriff auctions. It's the domain of professional buyers, because of thorny issues like possible unpaid taxes on the property, or the inability to inspect the inside of the home.

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With the influx properties coming on sheriff auctions, more are unsold and remain the property of the lending firm. One study, performed by the nonprofit Woodstock Institute, finds that in the Chicago region only 6 percent of properties were sold at the foreclosure auction in 2007.

When the government buys up home loans where the underlying asset is an REO home, many expect that Uncle Sam will start selling the properties at auction.

After all, the last time government took ownership of lots of properties was during the savings and loan crisis, and that was a huge boon for the auction business, notes Chris Longly, spokesman for the National Auctioneers Association.

This time around, it's still not certain whether the many private auction firms around the country will be used to sell off properties, since other ideas are floating around, notes Stephen Martin, president of The Gwent Group, a Bloomington, Ind. consulting firm.

Bargains for the bidding
But there's already a big bump up in REO homes placed in auction by lending firms themselves. Supply is also coming from builders unloading unsold new construction and from frustrated home sellers who turn to auctions for a quick sale.

Rick Levin, president of a Chicago-based auction firm, says real estate owned properties have been selling at between 10 percent and 20 percent of the appraised value of the home. "But you could argue that appraisals these days aren't very on target, and that an auction sets the 'real' price of a home in today's market," says Levin.

Bidder beware
Successful auction buyers have to worry about more than simply waving a bid at the right time.

When buyers purchase a home the traditional way, directly through a seller, they typically submit a purchase contract that contains contingencies, like the ability to get out of the deal should their financing not come through. Another typical way purchase contracts fall through is when a buyer orders an inspection of the property, and finds faults that the seller won't remedy.

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