Auction

September 05, 2006

Signs of Desperation

I see more and more signs of desperation as I drive around Aurora. I've seen enough auction signs to conclude it's an important part of the market. The last time real estate auctions were happening in Aurora was during the Ronald Reagan presidency.

This particular sign is from Williams Auction. I checked out their website, and added it to my list of sources for market data. I do not have a high level of trust in this data. For me the trust level is about the same as market data obtained from a builder. However, I am willing to consider any data from an auction, and as I gain experience with auction data, my opinion could change.

My prediction - the Aurora real estate market is going to see a huge increase in auctions in the next 12 months. Right now, these signs are seen mostly in low end neighborhoods. I expect to start seeing auctions in middle class and high end neighborhoods soon.

Auction Example

Market data for this example transaction: Williams claims to have sold 1830 Truckee Way on June 30th, 2005 for $135,000. I did a quick review of the MLS, listing history, deeds report, and foreclosure.

David C Finchem and Patricia A Finchem bought 1830 Truckee Way in April 2002, with a mortgage loan for about $199,000. Somewhere along the way, the Finchems quit making payments, and Household Finance (HFC) foreclosed on the property.

HFC took possession of the property and put it on the market 01/01/05. The initial asking price was $179,900. The listing agent was Tom Ladkow, Re/Max Horizons Group, REO Colorado.

The people at HFC must have been pissed about being $20,000 in the hole at the start of the process, and that was before expenses. Expenses amount to a lot of money - $8,000 real estate commission, $5,000 legal fees, $5,000 carrying cost, $5,000 property maintenance and fix up, etc, etc, etc.

And if that wasn't bad enough, the really annoying part is that nobody jumped at the chance to buy this property.

On May 4th, 2005 (125 days on market) HFC had reduced the price to $162,900, and still no takers. They took the property off the market to try their luck with the auction. Since nobody made an acceptable bid at the auction, Williams (the auction company) pretended to sell the house for $135,000.

Now HFC still owned the property, but they were a little less cocky. The property went back on the market July 7th, 2005 with a more realistic asking price of $154,900. 3 weeks later they accepted an $150,000 offer. In total, 7 months marketing time and $30,000 price reduction. It could be Tom Ladkow (listing agent) was responsible for the unrealistic starting price. But more likely it was a case of some nincompoop at HFC making bad decisions.

It's extremely unlikely that Tom Ladkow suggested the auction. It had to be the idea of someone at HFC. It probably cost HFC a few thousand dollars to confirm what Tom Ladkow was telling them from day 1 - buyers with a good FICO score and a down payment are hard to find.

It turned out well, a happy ending. R Paul Sojourner bought the house. He paid $150,000 and took out a $130,000 mortgage loan from Wachovia - i.e., made a $20,000 down payment. The large down payment is so unusual, I'm not sure I believe it. But this much I know - Mr. Sojourner moved in and fixed the place up. It makes a favorable impression from the street.

Unfortunately, 4 of his immediate neighbors are also in foreclosure, so the neighborhood market values are not holding up very well. Mr. Sojourner may wind up feeling like a sucker if he needs to sell in the next year or 2. But it worked out well for the neighborhood.

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