An auction of about 200 foreclosed homes in Orange County was held yesterday in Anaheim. I had meant to attend and observe, but other business came up, so I missed it. The Orange County Register had an article about it this morning that gives a pretty good overview and shows some photos of the event.
One of the homes on the auction list was one that I had been watching in Lake Forest for the last 5 months, since it was listed by the REO agent last September at a price of $742,500. It was a good floor plan in a very nice neighborhood, and had a good location within the tract, so I made it a point to go check it out immediately.
My estimate is that it needed somewhere between $50K and $75K to replace all the flooring, paint it inside and out, replace appliances, windows, lighting and plumbing fixtures, and re-landscape the yard to bring it up to par with the neighborhood. At that time, I felt that it should have been listed under $700K, and that would probably have brought in a sale price of around $650K. After fixing it up, that would put a new owner in a very nice house that would be worth about $750K – $775K. (The market has deteriorated since then, so I now feel that after fixing it up, the value today would likely be in the range of $675K – $700K.)
The price was lowered several times since September – to $650K, then to $639K, then finally to $619K. A few days later they changed the wording in the MLS to say “now scheduled to be in auction.” I spoke with the listing agent at that time and he told me that he had received 3 offers on the house when the list price got down to $619K, but because of the contract with the auction company, they could not accept any of them.
I was out showing homes to some buyers that I just started working with yesterday, and decided to show them this foreclosure to give them an idea of what one looks like. While we were in the house, the winning bidder from the auction came over to take another look at his prize. He told me that his winning bid was $593K, which included the 5% premium that the auction company collects, so the lender’s gross sale price was effectively $564,000. If he doesn’t find a lot of hidden problems with the house, I think he got a pretty good value if he intends to live in the property. (If he’s planning to fix it and flip it, it doesn’t have enough upside potential to justify spending the money and time and taking the risk in this market.)
This appears to be a happy ending with the buyers getting a house that they can fix up to their own taste, and the neighbors should be happy that it will no longer look un-loved and abandoned, but the lender appears to be the big loser here. By over-pricing in the beginning, and then committing to the auction format, I believe they lost at least an additional $50,000 beyond the losses associated with the bad mortgage. It will be interesting to see how many other lenders turn to auctions to unload their REOs!