IF public auctions bring to mind images of run-down, foreclosed properties in less-than-desirable areas, don't be fooled.
Increasingly, homeowners are putting their houses on the auction block in hopes of making more money without investing the time and hassle of a conventional sale, according to real estate experts. And many are succeeding, thanks to a limited number of homes for sale and high demand because of historically low interest rates.
"In prior years, when there had been an excessive number of houses on the market with moderate demand, you would probably expect somewhat of a discount from market value at auction," said Paul Cooper, of Alex Cooper Auctioneers Inc. in Towson. "But this type of marketplace where you have very little supply and high demand, auctions can work great for voluntary sellers."
Attendance at auction sales has risen significantly this year, as have sale prices for residential property, according to auction houses. Property owners like the quick nature of the sale and avoiding the customary visits by prospective buyers. Auctioneers typically earn a percentage of the sale price, which often is paid by the buyer.
Experts said investors still make up the majority of the buyers at auctions because these deals typically are not contingent on property inspections and appraisals - those duties are almost always included in conventional real estate sales. And though most properties sold at auction command prices below market value, real estate experts said the gap in pricing between conventional and auction sales has narrowed during the past year.
"Owners will auction properties because it is a clean break," said Daniel Motz, a Realtor with Coldwell Banker Residential Brokerage in Roland Park. "The auction is over and the property is sold. There are no inspections, no waiting for loan approval, and, in their minds, no nonsense."
And most real estate experts predict that more property owners will choose this method of selling in coming years.
Doesn't always work
"Who ever heard 10 years ago of selling these kinds of houses at auction? But the system, from our standpoint, works," said Jack Billig, of auction house A.J. Billig and Co. in Baltimore. "I can also tell you it doesn't work in every area."
"Sometimes it should never have been attempted, because the sellers have talked to someone who has given an over-inflated concept of what their house is worth or they themselves think they should get a certain price because a friend of theirs got it three miles away."
Ability to fix up
The growth of guardianships by an aging population that is leaving estate planning to their children also has fueled the sale of real estate at auctions, Billig said.
"People get older, they can't take care of themselves. They get moved into nursing homes," said Billig, whose company sells two or three guardianships each week.
"Their families don't want their houses, and the houses many times need extensive repairs. Generally, they're in very good areas and they require people who have the ability to fix them up."
Cooper and Billig, like most larger auction houses, work with real estate agents, list their properties on multiple-listing databases and market the properties extensively. Foreclosures remain a big part of the business because of loan delinquencies.
Cooper estimates that his company receives about 300 foreclosure referrals a week. Of those potential sales, about three-quarters get canceled, often because of bankruptcy filings or other resolution, he said.
Meanwhile, the amount of third-party voluntary sales is "unbelievable," Cooper said.
"I used to go down to Prince George's County when we'd just sit there by ourselves, because nobody would show up. We'd fill out the paperwork and come back. The other day I went down there, and I had five sales. I sold four out of five. Montgomery County is like a turkey shoot, as are Howard and Anne Arundel counties."
Cooper said he turns down more properties than he accepts for auction, mainly because of unreasonable expectations from the property owner. If a market is saturated with homes for sale and few have sold recently, Cooper said, it likely won't make sense to hold an auction.
"It's a colossal waste of time if you bring a property to the marketplace that is overpriced. Buyers are put out, sellers are put out, auctioneers are put out, and everybody walks away disappointed," he said. "The least I can do is my homework to try to determine whether it's worthwhile."
'Waste of time'
Working with the real estate brokerage community spurs interest in auction properties, say auctioneers, who typically share commissions with Realtors. Real estate salespeople have access to more buyers and will direct them to auctions if a property meets their criteria.
Most auction houses charge a buyer's premium to pay commissions. The premium varies within the industry, but typically ranges from 5 percent to 10 percent of the sale price, according to brokers. Cooper, for example, charges 5 percent. Billig takes the percentage from his company's profit.
"A lot of people do not have the patience to have a lot of people come trampling through their house," Billig said. "At auction, the sale is usually completed three to four weeks after the contract is signed. It's finished business; it's either sold or it isn't sold. Most of the time, obviously, it's sold - or they wouldn't do it."
Better than expected
Scott Frank is the owner of Mr. Charles Marketplace, a deli and gourmet market in Stevenson. He recently sold his home, also in Stevenson, at auction for $3,000 more than he expected.
"Rather than having different Realtors set appointments and carry on through your house at different times of the day, this way you have a group of people who are interested in your house coming together at one set time," said Frank, who has since enrolled in real estate school and hopes to work in the auction end of the industry.
Frank attended several auctions before deciding to sell his home that way. The auctioneers he chose presented him with comparable real estate sales, gave him an estimate on the sale price and recommended that he make minor improvements to his house. A few weeks later, the house sold for $450,000; the settlement took place 30 days later.
Frank was happy to avoid paying the closing costs commonly associated with conventional listings. At auction, the buyer owns the property from the date of the bid, even though the transfer of the deed hasn't occurred. Consequently, property taxes, water and sewage and common-area electric become the responsibility of the buyer from that date.
"I saw the simplicity of it," he said. "It's immediate cash. People come with a certified check, usually for 10 percent of the selling price, and buy the property as is."
Experts said buyers should know all the dynamics of purchasing at an auction. Motz said investors often are willing to take risks and are unencumbered by the disclaimers used in auction sales. But that kind of language can turn off less experienced buyers who are looking to buy a primary residence or secondary property.
"Generally, owner-occupants want the standard contingencies that are included in a real estate contract and transaction, such as inspections and a financing contingency," Motz said.
Motz regularly attends auctions throughout Baltimore, sometimes with clients but mostly to keep his eye on the market. He has seen sellers from all parts of the spectrum - some elated by the outcome, others distraught. He has seen buyers walk away with everything from bargains of the century to top-priced properties in a state of disrepair.
"Sometimes, owners fall far short of their desired price," Motz said.
He recently had a client withdraw her property from the market after the auction price brought nearly $100,000 less than market value. Reserve sales and other contingencies often allow sellers an out should the auction result in a bid that doesn't satisfy the hopeful seller.
The auction itself is not enough to make a good sale, said David Meltzer, of the Laurence Organization Inc., a real estate development and community management company in Pikesville.
"If the auction house doesn't have an aggressive marketing program, then a big part of the advantage of auction goes away," he said. "The auctioneers have to generate excitement. If they aren't marketing it upbeat, then they're just liquidating assets and things aren't going to go for top value."
Motz added, "As silly as it sounds, every element is in play at an auction ... even the weather. Last week, I witnessed an auction where the buyer got a good deal. Not surprisingly, it was windy and damp."
Meltzer visited a public auction before deciding how to sell an investment property in Charles Village this year. He chose an auction house that charged $2,500 to send out about 12,000 direct mailings to prospective buyers and advertised its listings online and in more than a dozen newspapers across the country.
"We had 40 people show up with $20,000 certified funds in their pockets," Meltzer said. The complex sold for about $55,000 per unit - $500,000 for nine apartments. It was "far beyond" what Meltzer had expected.
But Meltzer had a different experience when he auctioned a single-family home in the Mount Washington area recently.
The house sold for $145,000 - $10,000 less than he had expected to get in an area where homes sell for upward of $400,000. But the house was small and needed a lot of work. And Meltzer didn't purchase the advertising package he had for the Charles Village apartment complex.
"So, I wouldn't say I did poorly," he said.
'State your price'
"When you list with an agent and you state your price you're saying, 'This is the most I expect to receive,'" Meltzer said. "You don't really know what the market will bring, because it's always based on the price you stated. ...
"But when you have 40 motivated buyers who are all qualified and have shown up with $20,000 each in earnest to bid for your property, you've left it up to the highest bidder to decide how much your property is worth. It can be an incredible experience."