See an auction in the process and meet a couple of the bidders.
In January 2003, a modest three-bedroom red brick bungalow in Jefferson Park sold for $269,000. Last Thursday, at a foreclosure auction in a suburban hotel ballroom, that same Northwest Side bungalow sold for $209,625 (which included an auction fee of $14,625). Although he declined to provide his name, the buyer was positively jubilant. “I know it’s worth more than that,” he said. “I just got a nice home for me and my family.”
The man left the hotel beaming with satisfaction. He had just bought a house at 22 percent less than its 2003 sale price. What’s more, when last listed on the conventional real-estate market, the house had had an asking price of $315,000.
It was the chance of finding that kind of bargain that drew about 175 people to the Hyatt-Rosemont on April 10th for an auction of foreclosed homes by Rick Levin & Associates, an auction firm I wrote about two weeks ago. Some 82 houses, condos, three-flats, and townhouses were up for sale that day. The bidders were an equal mix of investors and people simply looking to buy homes for themselves.
I had expected the auction to be loud; I didn’t expect the yelling, clapping, and overall frat-party atmosphere. If I had been there to buy a house, I would have found the pressure nerve-wracking. But because I was only an observer, I agreed with Gerald McQuirter, an Oak Park real-estate investor who was standing near me: “It’s the new form of entertainment,” he said later, away from the noise. “It’s a good show.”
Beneath a screen showing each house as it came up for bid, the auctioneer rattled off the bids; his spotters stalked the room, waving and whooping when a new offer popped up. Bidders filled nearly every seat and lined the sides of the room, some looking tense and worried, others coolly monitoring the spreadsheets and other research materials they had brought with them. Behind the auctioneer were the representatives of the sellers (in this case, mostly banks), who watched the bidding on their properties with one eye and their computer screens with the other. They were looking to see when the bidding passed their “reserve,” the minimum price at which they would let go of the house. (If bidding doesn’t pass that level, the agreement is on reserve, meaning the seller can withdraw from the deal or try to negotiate a higher price with the winning bidder.) When bidding on a house passed the reserve, the sellers’ reps signaled members of Levin’s staff, who clapped and yelled like waiters parading a birthday cake.
The obvious aim of all that chatter and activity was to goose the bidding higher. It helped: the bidding on one house went from $1,000 to $12,000 as fast as the auctioneer could say the numbers. It crossed the reserve line at $32,000 and sold “absolute,” or without being put on reserve, for $45,000. With the 7.5 percent buyer’s premium that was added to the sale price (this money goes to the auction house), the buyers paid $48,375 for a blond brick bungalow in Englewood. In March 2006, that same South Side house had sold on the open market for $170,000.
Levin said the sellers’ reps might have had a reserve in mind for that house as high as $70,000, but understood the mood in the room. “They see how things are going today,” he said. “Prices are a little lower than we thought they would be.” Eager to get all their properties out of their hands, said Levin, the sellers’ reps may have revised their reserve figures downward in the thick of the action.
Prices may have been lower than Levin expected, but they were significantly higher than McQuirter had hoped. An experienced buyer of foreclosed properties (his firm is GMC Capital Realty), McQuirter had come to Rosemont planning to bid on two homes: a two-bedroom condo in Prospect Heights whose last asking price on the open market had been $125,000; and a one-bedroom Oak Park condo last priced at $99,900. He wanted to pay between $35,000 and $50,000 for each property. The Prospect Heights condo went for $96,750 (including the buyer’s premium); the Oak Park condo went for $84,925 (including the premium).
“I blinked and they went up past what I came in planning to pay,” McQuirter said. He held to his budget and dropped out of the bidding, but noted that other bidders, caught up in the noise and the swirl of action, may have wound up bidding higher than they had planned. He suggests that any homebuyer who wants to try buying at auction go in with an experienced real-estate agent or other auction “coach.” “Otherwise,” he said, “it can really catch you up.”
There are two more Chicago-area real estate auctions coming up. One, on May 10th, is an auction of builders’ new and unsold inventory in the south suburbs. For more information, call 708-645-2001 or www.theauctionator.com. The second auction is May 17th, when more than 150 properties will go on the block at the Congress Plaza Hotel downtown. For information, call (312) 334-1300 or go to www.chicagolandauctions.com.
Be prepared. As I wrote in my earlier blog about Levin’s firm, you can’t just walk in on the day of the auction and expect to grab a bargain. You need to do some research on the properties—and on the auction process—in advance of the actual sale event. If you want to buy a house at auction, you need to get started right now.