I have just returned from a real estate auction this morning for a house in the Village at Somersett. Despite the chilly morning the auction (held in the driveway of the property) drew a pretty good turnout. I counted 26 people in the crowd, including at least three real estate agents.
The subject property is located at 1655 Painted Rock Trail. This property is a four-bedroom, three-bath, two-story, 2,032-square-foot, single-family residence built in 2005. Originally purchased in September 2006 for $473,000, US Bank took over the property in the spring of last year. It was listed for sale as a bank-owned property in April 2008 at $329,900. The price was systematically reduced over the next several months until its most recently listed price of $248,500 in December. I guess after eight months with no takers the bank decided upon an auction approach.
As I said above the auction seemed to be well attended and also included “remote bidders” via a representative on a cell phone. The opening bid was $50,000. The auction process moved fairly quickly with the price escalating to around $160,000 before slowing in pace. At that point only three bidders remained interested. The auctioneer was able to coax a few more bids out of them for a final sales price of $168,000.
Then as quickly as it started, the auction was over and everyone went home; except for the high bidder who stuck around to sign some paperwork. I caught up with the auctioneer as he was getting in his car to head to Sacramento to sell houses there for the next five days. I asked him if there was a reserve price, and if so, had it been met. He replied that there really wasn’t a “reserve price”, however the lenders typically reserve the right to not accept the high bid if it doesn’t meet their minimum threshold. However, he added that he hasn’t been seeing lenders reject the high bids lately. He said that with a crowd the size of the one this morning, the final bid “is pretty indicative of the market”.
The high bidder will know within seven days if his bid has been accepted; and then a relatively quick close will follow. With at least nine properties in the Village currently listed on the MLS, at prices ranging from $228,900 to $379,000, I’d say the high bidder is feeling pretty good today with his $168,000 purchase.
Sully
Guy, final sales price of 168K – did that include the auction fees?
Guy Johnson
Sully, no the auction fees (also referred to as “Buyer’s Premium” in the terms) add an additional 5% ($2,500 minimum) to the high bid. So in this case, another $8,400 is added to the high bid.
I was told by an agent the other day that the 5% typically breaks down as follows: 2% to the auction house; 2% to the listing agent; and 1% to the buyer’s agent (if applicable).
BanteringBear
“The high bidder will know within seven days if his bid has been accepted; and then a relatively quick close will follow.”
Words of wisdom for the buyer: “Don’t hold your breath”.
smarten
Guy states the auctioner “replied that there really wasn’t a ‘reserve price’ however the lenders typically reserve the right to not accept the high bid if it doesn’t meet their minimum threshold.”
How does an auctioner know what lenders typically accept and do not accept?
Guy goes onto state that the acutioner “added that he hasn’t been seeing lenders reject the high bids lately.”
You mean auctioners follow the process after their jobs are over to monitor what is and is not rejected? I don’t think so.
I agree [again] with BB on this one – LOL. Just for fun, why don’t you [or Mike] follow this one for us just to see if the sale goes through and if it does, at what ultimate sales price?
And FWIW, I find the buyer’s premium to be outrageous – especially if he/she has no assurance his/her high bid will be accepted by the seller [and if so, upon what new terms/conditions].
Sully
You mean auctioners follow the process after their jobs are over to monitor what is and is not rejected? I don’t think so.
I guess that then begs the question – Is the buyers premium refunded if the sale fails to go thru?
inclinejj
Was this a foreclosure auction or a one time sale by the lender? done at the property??
I went to one auction last year on a condo project in West Sacramento. My bid was 158k but the lender and developer rejected every offer cause it wasn’t enough to pay off the construction loan..I was offered the property at a much higher price but refused
Gary
I have no experience with this, but is it possible that issues relating to payment/refund of the buyers premium may actually allow the auctioneer easy follow-up on the ultimate success of these sales, which otherwise seems unlikely (as noted in several comments)?
Sully
REDC terms and conditions state all monies will be returned if the seller cancels the transaction.
So, I imagine if the buyer backs out the fees (buyers premium = fee anyway you look at it) is forfeited. Assuming all of these auctions are similar in their term/conditions.
Move to Reno
$86 a square foot.
Standish
Look out below! Falling comps!
Can anybody not understand why the foreclosure tsunami is far, far from over? Suppose you own the 2,023 sq. ft. house next door and you paid $473,000 for it just like the former owner of this house. Now your new neighbor bought the house just like yours for $168,000. So you are going to keep paying on your mortgage that is now more than twice what your house is worth? Yea, sure you are.
How long before most all these places in the Village at Somersett become REO and the banks sell them all at auction?
Excuse me while I go laugh my ass off at the notion that the market is going to be better come Spring.
Reno Ignoramus
I also would hope we can have some follow up on whether this house ultimately sells for $168K at auction. That would be a remarkable 65% reduction from the initial selling price. But even if it doesn’t, the fact this auction even occured is significant. It is a harbinger of things to come.
In one of my very first comments on this blog three years ago I said that the entire project of Somersett was built on the bubble. The whole place rose out of the ground on the illusory wings of Voodoo money. Nowhere did more speculative buyers pay more frenzied bubbled up prices for poorly built properties than in Somersett. While the final devastation of Somersett values is still years away, the process is underway.
patterson
Half off in Somersett will be commonplace by the time this meltdown is over. People buying at 50% of original selling prices will be the norm.
BanteringBear
Anybody interested in a “view lot” in Somersett for $450k? BWAHAHAHAHAHAHAHAHAHAHAAAAAA!!!!
SkrapGuy
Hey Bear, I see the $450K view lot in Somersett is gone, along with the $800K red barn. I guess sometimes all it takes is about 3 years and 1000 days on the market for the reality to start to break through?
Move to Reno
Of course, there is that wild card in the deck. Obama and his team might do something to turn this housing market around 180 degrees, like mark-down all underwater mortgages to market.
BanteringBear
Yeah, SkrapGuy, I noticed that disappeared, but that’s what I was referring to. In fact, to the best of my knowledge there is only one property left in Somersett with such a bloated price tag. Most are following the market down, with chintzy cuts, allllll the way to the bottom.
Standish
Oh please. Here we go. I imagine Obama won’t be in office for more than 24 hours before we start to hear all the things he is going to do to “turn the housing market around 180 degrees”. And in how long? A month at the most I hear.
Yep, everybody the housing market’s woes are over. With a stroke of the presidential pen happy days are here again. Better buy now before prices start going up 15% a year and you will get priced out forever.
Grand Wazoo
I can’t imagine Diane is too happy with the results of this auction. What’s the latest – is she still planning to move back to SFO?
Martin
GrandWazoo, Diane has been mostly absent from this blog for many months now. Except for her monthly sales report, which is just a “plug in the numbers” update, she has not been very visible. As I recall, a few months ago she said that her planned move back to the Bay Area was on hold.
I also can’t imagine that she or any Somersett owner must be very happy with the prospect of houses there being auctioned off for 35% of the original sales price.
Martin
I’m not a lawyer, so maybe one of the lawyers who post here can speak to the issue. But I have heard from knowledgeable people that the constitutional prohibition against the impairment of contracts stands as a major obstacle to any effort to just “write down” mortgages. The holders of those mortgages have a right to expect that those mortgages (contracts) will be upheld according to their terms and will not be impaired by government action. My understanding is that only in the context of a bankruptcy proceeding can a contract be rewritten, and then only in conformity with exisitng bankruptcy law.
As said, I am not a lawyer, but that is my understanding. But I suppose the legalities won’t stand in the way of internet rumors about the incoming Obama administration.
DonC
Martin – I don’t know of any proposal to simply “write down” mortgages. Bankruptcy judges used to be able to rewrite mortgages. The law was changed a few years ago to disallow that. Now there is a move afoot to go back to the original rule.
There is no easy fix for the present situation, in part because there are a lot of Zombie banks out there. However, the credit spread is dropping in the corporate bond market and in some markets the low end appears to be stabilizing.
DonC
Forgot to include the Forbes cite for the stabilizing low end of the market:
http://www.forbes.com/2009/01/12/cities-ten-realestate-forbeslife-cx_mw_0112realestate.html
DownButNotOut
DonC – Thanks for the link. Although not making any promises it is the first somewhat positive article out there.
‘A falling discount doesn’t mean a price recovery is around the corner, but it does suggest a stabilizing market.’
Standish your probably too busy laughing your ass off to read this.
Move to Reno
Martian, I think the idea is that the banks would voluntarily mark down the principle in exchange for consideration.
Seems everybody is saying that there will be no economic recovery until the housing situation is fixed or it runs it’s natural course.
Patric
This story made me think about the personal consequences to all of us for our government bailing out the banks that made bad loans. These banks know they have a finite amount of time to process their bad debt and feed at the government trough. Banks can now dump these houses without regard for the price. In fact, the worse off they can demonstrate themselves to be the better their chance to get bailout money. Not only will we be paying off the largess given to banks in the form of higher taxes (yes, that is my prediction) we will also suffer the loss of equity in our house as a consequence.
CommercialLender
Patric brings a very interesting twist and one I had not thought about heretofore. With the govt forcing (by incentive or bailout mandate) the banks to write down assets’ values, they cause banks to accept lower prices for their foreclosures, which in turn reduce everyone’s equity including of those who did not overextend or try to flip. Long time owners and those who bought for the long term will have tens and hundreds of thousands of dollars removed from their balance sheets (paper losses for them).
This is a silent, yet very real, taxation. Said another way, its a transfer of wealth from the prudent to the overleveraged. Makes one want to drink.
smarten
Did you see the Hudson & Marshall [nevadahouseauction.com] February 19th Home Auction sticker on the front page to today’s RGJ? Allegedly 50+ bank REO Reno Area homes [in reality, only 39 and a couple of them were noted as “sold”] available for online bid.
Went to the terms & conditions and unsurprisingly, learned that:
UNLESS a listing is noted as being the subject of an “absolute” auction, the high bid is subject to the seller’s after auction consent; and of course,
There’s a 5% surcharge on all high bids to pay the seller’s sales commission.
Although at first glance the “absolute” auction disclosure appears to be a less deceptive means of conducting a real estate auction than what we’ve seen in the past, I wasn’t able to find a single listed Reno Area property which was denoted as being the subject of “absolute” auction.
I think this entire “auction” means of disposing of distress properties has a very short remaining life.
Reno Ignoramus
Hey Guy, it’s been almost a month since the auction and I am wondering if you know whether the sale actually went through at $168K?
Guy Johnson
RI, et al,
I spoke with a representative of Williams & Williams (the auction house) today and the representative informed me that the $168,000 high bid was, in fact, accepted by the bank (National City).
On another note, a couple weeks ago I attended a very large auction (350+ REOs sold in one day) with a client who made the high bid on a property in which he was interested. We learned last week that his high bid was accepted by the selling bank. My client is very pleased; he picked up brand new construction at a fire sale price.
Reno Ignoramus
Thanks Guy for the update. This sale is something of a watermark on the way to the bottom. This sale represents 65% off of the original selling price. I am aware of some folks who recently bought a similarly sized unit as this one, in this same development, for about $225K and thought they got a screamin’ deal. They are not going to be happy to hear about this sale at $168K.
The meltdown continues. 65% haircut. Amazing.
GreenNV
1655 Painted Rock closed yesterday for $168,000, the amount of the final bid at the auction. I wish I could report that some first time buyer got a foothold into the market, but the buyer is the same investor that picked up 1803 Laurel Ridge in October ($977,347 in August 2006 and purchased for $561,750 as an REO). At $168K, Painted Rock is still probably cash flow neutral (interesting, $1400 per month x 120 = $168,000 exactly).
Any reports on the latest mega auction you attended with your client, Guyster?
ming
I like see your web