Feb 18, 2008

Sunday's Sacramento Foreclosed Home Auction

Interesting. A wild and exciting process, that's for sure.

This event took place at Cal Expo on both Saturday and Sunday. I joined for the Sunday session, and tracked the prices for the first 50 or so homes. I will do detailed comps on these 50 in the next couple of days, but we know these markets well enough to form a few initial thoughts:

End result? Be careful....

There is a 5% "Buyer's Premium" added to all winning bids. That means if you win the auction with a purchase price of $200,000 - you're really walking away with a $210,000 purchase price.

Once that number is added in, I don't think the prices were amazing deals. There were a few good deals, many homes that traded at fair market value, and a few that were actually over paid.

I watched homes go across the block in Auburn, Rocklin, Roseville, Elk Grove, North Highlands, Rio Linda, Sheridan, Orangevale, Lincoln, and Fair Oaks. I don't have enough data to do a true statistical analysis for each area, but at the higher level 50 homes is sufficient.

Key Lessons:

a) Some houses are noted as "Cash Only". As you would expect, the bidding on those homes was much slower than the rest.

b) If you are an all cash buyer, then there are good pricing opportunities for you. You may find that amazing deal. HOWEVER, those properties that are noted as "Special Financing, Cash Only" are likely noted this because there are problems with the property. Remember - a lender won't lend against a house that requires too much repair work. ...and if they have a really bad pest report on file, then you are in a tighter position. So? A cash purchase means a fixer-upper.

c) You must perform all of your own inspections BEFORE the auction. The auction organizer opens up the homes on specific days to inspect. Hustle. You are going to want to inspect a good 20 or 30 homes and be prepared to act on any of them during the auction process. You can't inspect the home after you've bid and then decide if you want to move forward. Be careful.

d) Homes will go "back across the block" (re-auction) during the day if the winning bidder can't put the financing deal together. 2 homes came across in the early morning hours, before we had even made it through 30 homes. Why? We don't know. The reason for the re-auctioning isn't mentioned. Rumor has it... that a bank/lender (whoever has title) can actually look at the winning bid and accept or reject the price! Again, I didn't speak to anyone who had actual knowledge of this, I only heard the buzz in the room.

e) The auction was attended by hundreds of people, I'm sure we had well over 1,000. Fees to get in and spectate? Nothing. Just the usual parking fee of $8.00 for Cal Expo.

f) I can represent Buyers. This is good news. It's actually encouraged by the auction company. This is probably a very smart idea too, as the documentation involved in this process is quite lengthy - and not the standard contractual documents we use.

g) Deals? Not quite. Yes if you have lots of cash and are willing to take on repair work. Other than that, there may be some "pocket" deals (property in North Highlands for example was going below market value), but once you add that 5% it is questionable.

If you want to go to this auction next time, give me a call. I do plan on going again and collecting more data for my clients.

Thanks, and good luck bidding!

- Jim

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