The Wall Street Journal-20080206-Property Auctions Build Popularity in Glum Sector

Return to: The_Wall_Street_Journal-20080206

Property Auctions Build Popularity in Glum Sector

Full Text (750  words)

As home sales have plunged, the real-estate auction market has soared.

Individuals and developers unable or unwilling to wait are turning to live auctions for fast sales. While still only a small percentage of housing sales, the real-estate auction market climbed 5.3% in 2007, generating $58.4 billion, according to a recent report from the National Auctioneers Association, which is based in Overland Park, Kan.

The Commerce Department said new-home sales fell 26% in 2007, the steepest drop since records began in 1963. Last week, the National Association of Realtors announced that sales of previously owned single-family homes suffered the biggest annual drop in 25 years.

In contrast, auctioneers such as Joe R. Wilson had their best year in 2007. Mr. Wilson predicts the sluggish real-estate market and growing awareness about auctions will make 2008 even stronger.

"Sellers like it because it's fast, efficient and effective," said Mr. Wilson of Wilson Auctioneers Inc. in Hot Springs, Ark. "Buyers like it because they believe they're getting a deal."

He added, "We live in a microwave society. People want it now. They don't want to wait eight, nine, 10 months to sell a house."

He said more developers are turning to auctions to sell new developments.

Bill Johnson, who has been a builder for almost 40 years, recently opted for an auction. One reason is because he was getting more online traffic from potential buyers than visits to model homes.

Recently, he sold 18 of the 40 Minneapolis-area properties he auctioned. "We thought that if we sold 10, it was going to be a good weekend," he said.

Buyers, he said, have been "paralyzed." "They don't know what's a good deal and what's not," he added.

Auctioneer Marty Higgenbotham said auctions give buyers confidence that they are paying a fair price.

About a week ago, he sold 188 of his 200 new homes and townhouses in an auction in Minneapolis. He had hoped that prices would be close to 60% of asking price; they were 55% to 57%.

"A lot of people think auctions are a last resort, but it could be the best choice for many," says Harlan Rimmerman, director of education for the National Auctioneers Association. "An auction will tell you what the true market is."

That is because it puts buyers and sellers together and creates a sense of urgency.

Tommy Williams, president of the National Auctioneers Association, said another reason for the growth is that people "are getting more familiar, more comfortable with auctions."

"It's fair, it's open; everything about it is transparent," he said.

Mark Bratton decided to sell his Arkansas lake house by auction because another cabin home had sat on the market. Mr. Bratton's house sold for $25,000 more than the minimum bid of $250,000.

"It was so easy," he said. "We showed the house for two weekends, and it sold effortlessly."

Another sign of the growing interest in auctions is that more real- estate agents are taking classes. Mr. Rimmerman said his association has had to increase the number and size of classes to meet demand.

"The market is in a downturn, and what the auction provides is another option for agents to offer their clients," Mr. Rimmerman said.

Buyers need to do their homework ahead of time. They should check out the community before attending the auction and decide beforehand how much they are willing to spend.

A winning bidder at an auction almost always needs to have a certified check or cash of about $10,000 to $20,000 for a down payment, which is nonrefundable. Most sales must be completed within 30 to 45 days.

Sellers can find reputable auctioneers through friends, family, real-estate agents and professional associations. They typically pay an upfront marketing fee, which varies but is usually about 1% to 2% of the sale price. The auctioneers use the money to advertise on the Internet, newspapers and postcards to prospective buyers.

The seller decides ahead of time whether a sale is "absolute," meaning the property will be sold no matter what price is offered, or a reserve, meaning the seller has the right to accept or decline any or all bids. Some auctioneers charge a fee for an auction that doesn't result in a sale.

In December, the National Auctioneers Association launched what is believed to be the first real-estate auction multiple-listing service. Prospective bidders can view coming auctions on www.auctionmls.com. The association also teamed up with the Auction Network to develop a 24-7 multimedia network devoted to the auction industry.