Monday, November 20, 2006

Auction Report

Just received an email report from reader Pete, who attended a house auction in Roseville hosted by Accelerated Home Sales and Auctions. Here's his take on what transpired:


The auction in Roseville today was totally goofy. 16 properties and nothing sold except property #2 & #12. Everything else had minimum bids that were too high and no one wanted to be a fool. Buyers today want 10% cash on cash returns for rental properties, or there is no reason to buy it. There is too much risk in this rapidly falling market.

Property #2 @ 1607 Basler Street at 16th, Sacramento, MLS # 60066365, 828 SF, sold to the only bidder, a woman who paid the minimum bid of $195,000. $235/SF

Property #12 @ 3416 Milburn Street, Rocklin, MLS 60063806, 2213 SF, sold to the third bidder. The minimum was $275,000 and it went to $330,000. $149/SF. Milburn Street is a fairly solid property. The seller paid $336,000 for it in October 2003. After selling costs, he took a loss.

None of the other properties sold. None of the other properties even had an opening bid. The buyers are getting smarter these days. They know if a property reserve is over $125/SF, it is not worth seeking.

Two months ago, I saw an auction at 6000 Little Rock in Rocklin. It was an 1800 SF house with a minimum bid of $380,000. It had been listed for many months at $485,000 or so with a Realtor. The house sold for the minimum bid of $380,000. Today, you must realize that buyer, who probably thought he won a good deal, really caught a falling knife! He paid $211/SF. The new comp in town is a nicer, bigger, better located house for less money at $149/sf. That makes the Little Rock home worth what...$268,000 today? That buyer is down over $100,000 in two months!

The auction had about 60 people seated in the room at the Hilton Garden Inn in Roseville. They all came to check out the action and win a good deal. The only action turned out to be on the one home in Rocklin. There were 4 properties for sale in Lincoln, some are brand new, obviously owned by inverstors. No bids. The minimum bids are above what the home builders are asking for new homes in today's Sacramento Bee. How stupid is that?

There are several lessons here: 1) overpriced homes will not sell, particularly at an auction, 2) if you are going to buy an auctioned home be careful. A good deal 2 months ago may prove way overpriced two months from now, so it better make sense from a cost, income, and market comp standpoint. (ie., the Little Rock investor got burned, in hindsight). 3) Much better deals are coming downstream. There are 14 unfilled sellers at this auction who cut their prices to what they thought were the bone. Yet 60 qualified investors with money in their pockets just told them to go pound sand. Now those sellers get to reduce their prices further, or take the properties off the market. 4) If you bought a house in 2003, that is about what it is worth today. And it will probably be worth less tomorrow.

The auctioneer was named Barry Mathis with Accelerated Home Sales and Auctions. He seemed to be an experienced Realtor and kept telling us what great deals these were. Clearly, even the Realtors are out of touch with the market. He was trying to say how "small" the negative cash flow would be on these as rentals. Well, no one wants any negative cash flow now, particularly in a declining market. If a property does not gush cash flow after all expenses, including vacancy and management, you can keep it, Mr. Auctioneer.

All the best, Pete


Anonymous said...

Max, there was another auction in South Sacramento last night and nothing sold at that one, either. It is amazing the auctioneers are so out of touch with the market values. I bet they won't make that mistake again.

AgentBubble said...

Great post...Here's some more info on the two houses that sold:
#2--MLS #60066365

From what I can tell, there was probably an outstanding balance of around $50,000 on this house. They've owned the house for about 20 years though.

#12--MLS #60063806

Refinance at $382,500 on 3/14/05
Refinance at $472,500 on 1/27/06

With a sales price of $330,000, we're talking a loss of over $150,000 once you include fees!

Anonymous said...

Pete: Your assessment of the auction and how it relates to the market sounded dead on. Thanks for the info.

Anonymous said...

Great story about the current state of the market - thanks Max.

Anonymous said...

These auctioneers are really realtors in disguise. They charge a commission over 6% and the houses they are "auctioning" are by private parties, not by LENDERS. BEWARE of "auctions" if they are not by lenders - if you are a savvy realtor you'll know what the market can bear and who is out to just swindle another buyer. Incidentally, these guys don't just charge a premium to the guys that are selling their homes, they also charge a premium to those who are buying. Sounds like this latest re binge/cleanup has come at an opportune time... too bad it takes the feds to step in and tell us how to have some integrity...