Hit An Auction

RecessionGirl is a former employee of a boutique asset management firm/auction house and wants to share her inside information.  As most of you are all too well aware, the housing bubble has burst.  There are over a million foreclosures in America every 20 seconds.  That’s a straight-up lie, but there are an awful lot of them.  This article will help position you to get the best value for a foreclosed home through auction.

When houses are foreclosed upon they go to auction at the county courthouse before being returned to the banks.  But, not so fast.  Don’t go to that auction.  It’s a common misconception that you will get a ‘great deal’ at a courthouse auction.  However, that’s what insiders refer to as an ‘early auction’.  It would behoove you to do a little bit of research and catch an asset management firm auction, instead, where the real deals live.

If the foreclosed house does not sell at the initial courthouse auction, it goes to the bank.  Banks, especially in this market, do not want to hold a house on their books as the bank is responsible for the carrying costs involved (aka taxes).  They literally loose money by holding onto homes.  Banks are in the business of making money.  They don’t want to invest in carrying costs for the thousands of homes that are on their bank sheets.  

Most banks holding homes consider the three month mark critical. Pay attention. 90 days is the winning number.  It is highly advantageous for the bank to get rid of the property at this point as the home becomes an extremely toxic-asset, especially when compounded with the other homes on the bank sheets. The empty house might turn into a crystal-meth lab or a crack den (no joke) after being vacant for so long, making it a super hard sell for the bank and most likely a reduced revenue sale.  That’s when banks get into the wheeling and dealing of REO’s.  The bigger, better and more connected banks understand that they do not have the manpower or advertising leverage to conduct fire auctions to rapidly expedite the sale of the parcels they are carrying.  They turn to financial asset management firms/auction houses to manage the marketing and follow through to sale.

Why would the asset management firm auction be a better (cheaper) deal than the initial court house auction?  What’s the changing variable? Simple: Time. The advantage of the asset management auction is that it is occurring 3 months after it has been on the bank roll with 1 auction at the courthouse already conducted.  If the bank doesn’t accept the final bid through an asset management auction (the second auction), it goes back to the bank.  Costing the bank money, maintaining it’s toxicity.  Potentially turning the home into a crack den as the home continues to be vacant, which potentially makes the house next door that the bank also owns of lower value.  The asset management auction is a bit of a ‘last call’ for the bank to dispose of a home.  

Banks are typically slow to come to terms with market value as they flirt with insolvency on prices that are between a quarter and half of their 2006 values. In this particular market most banks are in complete denial, but they should not be able to keep it up.  Stay tuned for legislation, executive orders, extra TARP and the ‘bad bank’ to see how long banks can play hide-and-go-seek with home values.  This is no guarantee that a bank will accept your final bid through an asset management auction, but you are more likely to get the price you want on post-bid negotiation.

But don’t get too excited.  Banks are not stupid.  They haven’t started ‘dumping’ homes on financial asset management firms or REO specialists.  Do some research.  Watch the clock and trust your instincts.  For sure there is a deal out there for you, but RecessionGirl would hold out till May or June.  Check the links below to get started:

New York’s Premiere Auction House/Financial Asset Management Firm

http://www.gramercyauctions.com/

Other Auction Firms

http://www.williamsauction.com/

http://www.houseauctioncompany.com/index.php