Auction Fever

From the Wall Street Journal:

Homes Going Once, Going . . .
Auctions Are Bustling for Houses,
Including Some Historic Gems;
How to Keep From Getting Burned
By RUTH SIMON and JONATHAN KARP
June 30, 2007; Page B1

With the real-estate market cooling, many homes are being hawked by auctioneers.

The selection of houses for sale — often foreclosures or properties that can be tough to value — can run the gamut from shotgun shacks to McMansions. And buyers need to do their homework or risk getting stuck with nasty surprises.

Still, there can be some deals hiding in the weeds. Consider Damon Malicoat, 37 years old, who bought a bank-owned house near Warrensburg, Mo., at auction in November after it had been vacant for nearly two years. The front-yard “grass” reached up to his knees, and the basement contained a dead snake.

He feels like he got a good buy, though, paying $100,000 for the property, which had been appraised at $139,000. He spent about $26,000 to upgrade the electrical and plumbing systems and make other repairs.

Sales like these are on the increase. Chicago-based Sheldon Good & Co. says it expects to run 44 residential auctions this year, twice as many as in 2004. Among the recent sales: 21 condominiums in the New York City area and fractional shares in a Jackson Hole, Wyo., resort.

Dallas-based Hudson & Marshall of Texas Inc., which specializes in selling foreclosed single-family homes, auctioned 300 properties in Texas and 300 others in California during June. In July, the company plans to auction 400 bank-owned properties in northern California and 400 others in Ohio and Pennsylvania.
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Bidders need to do homework or risk overpaying for a property — or being saddled with unexpected repairs. “Are there gems you’ll be able to pick up out of the dirt? Yes, there are, but not at every sale and not with great volume,” says Stephen Martin, president of Gwent Group Inc., a Bloomington, Ind., consulting firm that works with the auction industry.

Unlike in a traditional real-estate transaction, auction buyers need to do all their due diligence before bidding. That’s because properties are sold at auction “as is.” “There are no contingencies,” says Craig King of J.P. King Auction Co., based in Gadsden, Ala. That means you can’t back out of a deal if you later discover the roof leaks.
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Overpaying is another risk. Buyers need to determine ahead of time what similar homes in the area are selling for, though that can be tricky in a cooling market where there’s plenty of inventory and few sales.

“The best advice I can give [buyers] is to get a qualified real-estate person who…definitely understands market value and how to determine it,” says Mr. Martin, the auction consultant. He suggests bidders hire an agent who specializes in representing buyers. Some auction houses will pay a real-estate agent a commission out of the proceeds of the sale. Bidders can also get information about recent sales from sources such as Zillow.com.
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In some cases, “auction fever” can produce a higher-than-expected sales price. About 11% of the bank-owned properties auctioned off by Williams & Williams, Tulsa, Okla., go for more than the bank’s previous asking price, says Dean Williams, the company’s president.