Thursday, June 29, 2006

Sellers in Florida Turn to Auctions as Housing Market Cools

The five-bedroom house in Davie with hurricane shutters, a pool and guest cottage went on the market last year for more than $1 million. It sat for six months with no takers.

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."

Florida Housing Market in Transition

The housing standoff between buyers and sellers in South Florida will continue for another six months, and then prices in some areas will fall, a real estate trade group economist predicted Tuesday.

In some cases prices may fall by 10 % to 15 %. But in many areas prices will still rise modestly this year, by 4 % to 5 %. And when sellers finally bring asking prices down, pent-up demand will likely result in hordes of new buyers in South Florida.

The long-expected shakeout of the real estate market now underway is healthy for a region both overbuilt with new condominiums and overrun by speculators. Unlike in previous real estate downturns, the economic and demographic fundamentals underpinning South Florida real estate remain strong.

So strong, in fact, that the Washington, D.C.-based economist is looking to buy some investment properties here himself.

Now, home sales are declining. And the inventory of homes for sale has ballooned because stubborn sellers refuse to lower prices and buyers are ever willing to wait it out. Ultimately, sellers will relent.

When a transitioning market cools, it's the sales that drop first, and then prices.

Prices are likely to drop more for condos than for single-family homes.

But in the long term, he is optimistic. Baby boomers continue to move here, international demand remains strong, unemployment in South Florida is low, and mortgage rates -- despite inching higher in recent months -- are still at historically low levels.

Just as important, the speculators are fleeing the market. The speculators are most to blame for huge price hikes.

Florida will be better for it with them gone.

The increased threat of hurricanes and the availability of property insurance as South Florida's two biggest worries. Such worries are prompting some baby boomer and retirees to look away from Florida.

Some baby boomers moving to places such as the Smoky Mountains in Tennessee and North Carolina.

U.S. National Home Sales Were Down

U.S. national home sales were down more than 15 % in the five areas -- California, Arizona, Nevada, Florida and the District of Columbia -- that have had the hottest housing markets. Overall, national home sales fell 2.1 % in the first quarter of 2006.

Florida Foreclosure Rates Up

National U.S. foreclosures increased less than 2 %from April to May 2006, but are up 28 % from May 2005.

Florida had the eighth highest rate, with an increase of more than 6 % and 8,898 properties entering some state of foreclosure -- more than every state except Texas.

The situation is particularly acute in Florida, foreclosure filings had increased 42.55 % in the first quarter of 2006 over the fourth quarter of 2005.

Retirement Condos Flooding the Florida Housing Market

The founder of the Boca Real Estate Investment Club scanned the multiple listing service last week and found 2,700 condominiums for sale just in Palm Beach County retirement communities. That represents roughly 9 percent of the county's total listings.

"That's a staggering number," Dweck said.

Century Village west of Boca has 282 listings, he said. Kings Point west of Delray has 255, and roughly 20 percent of those have been on the market for 200 or more days.

"A lot of these buildings took a beating in the hurricane," Dweck said. "And a lot of these people are too old and too frail to go through the repairs."

In the days following Hurricane Wilma last October, many seniors struggled to stay alive after winds ripped off roofs and power outages prevented those on upper floors from using elevators. Hurricanes Frances and Jeanne wreaked similar havoc in 2004.

But don't blame the storms alone for the over-55 condo glut, Dweck said.

Some of the building facades haven't been updated in years and aren't appealing to existing residents or buyers, he said.

"That market will continue to correct downward," Dweck said. "I don't expect it to pick up at least for another year."

South Florida's housing prices might be out of whack, but at least we're no Naples.

That tony city on the other side of the state has the nation's most overvalued housing market, according to a study released this month by Global Insight and National City. Homes in Naples are overvalued by 102 percent.

After Naples, the nation's most overvalued markets are Salinas, Calif. (79 percent), Port St. Lucie-Fort Pierce (77.4), Merced, Calif., (77) and Bend, Ore. (76).

Broward County almost looks cheap by comparison. Broward homes are overvalued by 57 percent, followed by Miami-Dade at 64 percent and Palm Beach County at 65 percent.

Florida and California account for 17 of the top 20 overvalued markets.

Economists at Global Insight and National City crunched the numbers after factoring in median sales prices, median income, population and historical values.

While there is the potential for price declines in these overvalued markets, most of these areas won't experience widespread problems, said Jeannine Cataldi, senior economist for Global Insight.

"In most of these markets, the growth will just slow or flatten until market conditions catch up to prices," Cataldi said.

Meanwhile, the folks at Homekeys in Miami, an online real estate service, have done a little analysis of their own.

They've determined that 23 percent of properties in Miami-Dade are priced at or below the company's estimate of market value. In Broward, 37 percent of properties are at or below market value, and in Palm Beach County it's 59 percent.

Bottom line: Sellers are getting more realistic with asking prices, said Mario Villena, vice president of marketing for Homekeys.

"The pricing gap is beginning to go away," he said.

Don't expect a break anytime soon from the rising costs of construction materials, said Ken Simonson, chief economist with The Associated General Contractors of America in Washington, D.C.

In the past year, the industry has seen increases of 87 percent for copper and brass, 48 percent for asphalt, 40 percent for diesel fuel, 26 percent for drywall, 18 percent for plastic construction products and 15 percent for cement.

Some of those increases will level off as the U.S. housing market continues to soften, Simonson said. But the rising costs are a result of strong demand in Asia and elsewhere, and the worldwide building boom isn't likely to let up.

"If you're trying to get a bid on a home, you're going to face much higher materials costs," Simonson said in a phone interview last week.

Consumers need to factor the price increases into their budgets and contractors need to buy materials sooner, Simonson said.

Home Sales Plunge in South Florida Housing Markets

South Florida's housing market continued its yearlong slump in May, and many buyers are holding off for fear that the bargains aren't big enough.

"They're seeing prices reduced and they say, `Maybe it's just as well that I wait a few more months and see how good the deals get,'" West Palm Beach analyst Brad Hunter said.

The trouble with that strategy is 30-year mortgage rates are rising to near 7 percent, potentially offsetting any savings buyers might realize by waiting to buy a house, he said.

Last month, sales of existing single-family homes remained soft, and price increases leveled off from last year's record highs, the Florida Association of Realtors said Tuesday.

Sales in Palm Beach County fell 26 percent compared with last May, while sales in Broward County dropped 19 percent. It was Broward's 23rd consecutive month of year-over-year sales declines. Palm Beach County sales have been down in each of the past six months.

Palm Beach County's median price of $391,000 was virtually unchanged from May 2005. Broward's median of $379,800 rose 3 percent over last May.

Existing home sales in Miami-Dade County fell 26 percent, while the median price rose 7 percent over May 2005 to $379,700.

The median is the level at which half the homes in an area sold for more, half for less.

Meanwhile, prices of existing condominiums in Palm Beach County rose 10 percent over last May to $218,900. In Broward, prices increased 9 percent to $212,300. But the number of condosales continued to plummet in both counties compared with May 2005.

Despite the relatively flat prices, Palm Beach, Broward and Miami-Dade counties remain among the nation's least-affordable markets, with a typical 30-year mortgage eating up more than 40 percent of a homeowner's income, according to a study released Tuesday by PMI Mortgage Insurance Co. in Walnut Creek, Calif.

Year-over-year median prices for single-family homes soared last year to $421,500 in Palm Beach County and near $400,000 in Broward and Miami-Dade. But price increases have fallen in the past several months, and some housing analysts predict median-price declines for select neighborhoods.

The market was bound to cool as prices rose to unsustainable levels, analysts said. They also cited rising mortgage rates, insurance prices and property taxes, as well as a glut of homes for sale.

Sean Robertson, 41, of Boynton Beach, had planned to buy a villa on Hypoluxo Road near Congress Avenue. He backed out of the deal partly because the only property insurance he could get was from pricey Citizens Property Insurance Corp., the state-run insurer of last resort.

Robertson and his wife instead decided to rent.

"That's going to be better for us," he said. "I didn't want to get stuck with outrageous rates for insurance and property taxes. And I'd like to see the market soften a little bit more."

Kiku Martinson, director of real estate for Campbell & Rosemurgy in Deerfield Beach, said she's encouraged to see home sales and prices pick up compared with the past few months.

Broward's median in May was a 5 percent increase over the April median of $360,600. Sales in Palm Beach and Broward counties were the most of any month in the two counties this year.

"It's a small victory, but I'm happy about it," Martinson said. "I've given up thinking we're going to have last year's market this year."

Statewide, sales fell 24 percent, and the median price increased 11 percent from last May to $256,400. Nationally, existing home sales in May fell 6.6 percent compared with May 2005 and the median price rose 6 percent to $230,000, the National Association of Realtors reported.

Scott Sherman, of Pompano Beach, has been looking at homes, off and on, since 2003. He refused to pay the jaw-dropping prices and continued renting, hoping to find a deal one day.

That happened last month when Sherman signed a $500,000 contract for a three-bedroom house in Tamarac. He said he came in with a low offer but, to his surprise, reached an agreement with the owner after only minor dickering.

Sellers are much more reasonable this year, said Sherman, 54, a gas station owner.

"It's now a buyer's market," he said. "You name the price. If you've been waiting, this is the time to get back out there."