Sellers in Florida Turn to Auctions as Housing Market Cools
So the owner, Les Galex, decided to try something different. He hired an auctioneer.
Boca Raton auctioneer Fred DeFalco and his team hosted three open houses, advertised in newspapers and mailed thousands of public-sale brochures. Seventeen bidders, each toting a $50,000 cashier's check, crammed into the family room of Galex's house on a scorching hot April day. In seconds, DeFalco worked the bidding to more than $900,000.
A Broward County couple, with their five wide-eyed, well-behaved children sitting on the floor, made the highest bid: $976,500. They signed the papers, and the sale closed less than a month later.
"Everything went off without a hitch," Galex said.
As the nation's housing market continues to soften after a five-year boom, more sellers are eschewing traditional real estate listings for public auctions, which accounted for 6 percent of all U.S. real estate sales in 2004, according to the National Auctioneers Association. That number grew to 19 percent in 2005 and is expected to balloon to 30 percent by 2010.
Auctions used to be associated more with livestock and vacant land. But last year residential real estate auctions generated $14.2 billion in sales, an increase of more than 23 percent from 2003.
The Florida Auctioneers Association doesn't provide specific numbers, but President Neal Van De Ree said the public sales statewide have increased tenfold just in the past eight months. The process is fast, gives the seller a measure of control and almost always brings fair market value, proponents say.
"We're getting tons of calls," Van De Ree said.
Another reason to consider an auction: It spotlights a property, helping it stand out. And that's noteworthy in South Florida because the number of homes for sale has more than doubled since last year in Palm Beach County and tripled in Broward County.
"That `auction' sign is magic," said auctioneer Scott Frank, who works with DeFalco.
Marilou MacKenzie, auctioneer for Palm Beach Gardens-based Illustrated Properties, added: "Auctions create a buying frenzy. It's an ego thing. If you're trying to buy something, you don't want the guy next to you to have it."
A seller who commits to an auction usually doesn't have to pay a commission or most of the closing costs, which are the responsibilities of the buyer. But the seller does have up-front marketing expenses that vary, depending on the auction company.
Some companies charge up to 3 percent of the value of the home, meaning a seller might find an auction cheaper than listing the property with a real estate agent. Other companies charge more.
Annette Elms, president of Jupiter auction firm Christenson-Elms, said it's not uncommon for her firm to get $30,000 to market a property. The money is spent on television, newspaper and Internet advertising, as well as signs and direct-mail brochures. That ensures dozens, if not hundreds, of qualified bidders on the day of the auction, Elms said.
The price is steep, and often causes sellers to forgo auctions. But those who do choose the process know their homes will sell within 90 days or so and fetch top dollar, Elms said.
Those are important considerations in today's uncertain housing climate, where homes can stay on the market for months, steadily increasing sellers' carrying costs.
"They might be carrying two mortgages and they might just want to get on with their lives," Elms said. "If you list your property, it's going to be on the market a very long time. No matter how nice it is, it's just one of many that people have to choose from."
Real estate agents still can get commissions from auctions, but some don't like the concept. Scott Agran, president of Boca Raton-based Lang Realty, called it a "fad," saying that qualified agents can market the homes just as well as auctioneers.
"If the sellers have priced their homes correctly, they're going to get the same type of activity and interest," Agran said. "Everybody's always trying to create a better mouse trap.
"An auction is great hype, but it's not something I would look into or am excited about."
Bidders might pay more in fees to buy a home at auction but usually don't mind because they're dealing with motivated sellers and avoiding drawn-out negotiations, auctioneers say. They also tend to feel like they're getting a deal on the price of the home, although that might not be the case.
"You know you're not going to overpay for it," said Carl Carter, spokesman for J.P. King Auction Co. in Gadsden, Ala. "With an ordinary listing, you make an offer, and you might be 15 to 20 percent over what anybody else was willing to pay."
Auctions generally work best for high-end homes, but some real estate observers say they could become more common for mid-priced properties if the housing market remains sluggish through the rest of the year.
The public sales aren't meant for homes that lack a certain appeal. In addition, many auctioneers will pass on unmotivated sellers and those who don't have much equity in their homes because they're unrealistic about how much the properties will fetch. Some auctioneers won't handle distressed properties.
Auctions are designed to help sellers find buyers after only about 10 minutes of bidding. They don't always go according to plan, but still can be effective.
Howard Frank, no relation to Scott Frank, hired DeFalco to auction his five-bedroom Weston home on June 8. A Weston couple looking for bigger digs had the high bid, but it wasn't high enough for Howard Frank, who exercised his right to reject the offer.
After a weekend of back-and-forth negotiations with different prospects, Frank agreed to sell for $705,000 to a New York native, Paul Ferretti, who had toured the house before the auction.
Business prevented Ferretti from attending the sale, but the event set the market value for the home and showed him what he had to pay to get it.
In that respect, Frank, 42, considered the auction a huge success. "I would never list my house again."