Why Activity Is Picking Up In Florida's Property Auction Markets By Vanessa A. Doctor
In a depressed housing market, which is still reeling from the devastating mortgage meltdown, a lot of investors and brokers view auctions as a vital portfolio management tool, and like any other tool, it works wonders when used correctly for the right task.
The one thing all auction sellers in Florida, and probably elsewhere have in common is a desire or the need to sell within a shorter time frame than ordinary marketing methods or techniques would usually take.
Why The Auction Markets Are Good For Selling Homes These Days
Because of the slow activity in the housing market, here are among the most common reasons we hear about the perks of undertaking an auction. First, many view that these activities free up cash for alternative opportunities, and also eliminate "carrying" costs like interest, maintenance, utilities and taxes on property that is selling more slowly than anticipated in a business plan. Second, auctions enable home sellers and brokers to draw more attention to the property and set it apart in a crowded marketplace.
Third, auctions help cast a much wider net by drawing prospective buyers from a wider geographical area. And in addition, property auctions allow to establish the fair market value of a property that is difficult to appraise due to a lack of comparables. In reality, there are almost as many reasons as there are sellers. For those who are thinking of undertaking a property or home auction event, first ask yourselves, is the property suitable for an auction?
For instance, if you're selling commercial land, the auction method is generally well-suited for locations near major cities, preferably with frontage on major roads and high visibility. For residential or commercial buildings, the auction method would most probably be best-suited to those that are high-quality, non-distressed, and in the growth market.
Auction Activity For The Condo Market
As most would expect in a tough residential condo market, auction activity is on the rise as developers and individual owners seek to quickly dispose of units that otherwise might sit idle and empty for longer periods. According to CEO of Pompano Beach-based Fisher Auction, inquiries have risen by 30% to 40% from a year or two ago, mostly from developers or bankruptcy courts.
While at this point, sellers have been end-users who bought on speculation, or were developers who needed their money back, the inquiries are now coming mostly from financial institutions. Most buyers are investors who are looking for deals and are not worried about staying in the market, while some auction buyers are individuals, but most activity is coming from domestic investor groups, and foreign buyers are also coming in to the auction market as well.
Activity Is Peaking In The Auction Markets Despite Some Problems
According to the chairman of Sheldon Good & Company in Chicago, one problem with condo sales at auction is depth of market, which he views greatly varies across the state of Florida. According to the housing market analyst, leverage is everybody's enemy, as in some markets, prospective buyers worry about a further drop in pricing.
In other property markets where the oversupply isn't as severe, buyers perceive less value from the auction, however, there's plenty of business right now in the auction markets, notes the head of Sheldon Good & Co., as they are negotiating as well with other companies in the eastern and western sides of Florida, and the total amount of real estate under consideration exceeds $100 million.
Buying property at auction can often produce a bargain purchase, but equally there are many pitfalls when buying in this manner. It is quite easy to make a disastrous mistake, so beware. Here are my five top tips to consider when buying a house at auction.
One: Always go and see the property with your own eyes. It may seem so obvious, but you will be surprised how many people dont. If you dont inspect yourself, or appoint a qualified advisor to do so, how do you know the location is acceptable? If you dont go, you could end up buying a house situated under an electricity pylon, or opposite a sewage farm, or even worse, ten yards, or ten feet, from a rapidly eroding clifftop. The property might look incredibly cheap on the glossy pages, but in those cases would it really be so? Dont be persuaded by fancy colour photographs in the auctioneers catalogue, and his flowery descriptions. Thats their job, to sell to unwary buyers. Remember Caveat Emptor: buyer beware. Always see the house with your own eyes, or hire a pair of reliable eyes to see it for you.
Two: Prepare accurate costings. It is pointless buying a house for 100,000 that needs another 100,000 spending on it, if it will only be worth 170,000 after the work is completed. Work out actual costings carefully, and dont forget to include financial arrangement fees, lawyers fees, and if you are planning to sell straight away, your selling costs too, such as Agents fees and any loan repayments. Professional fees can quickly add up, and if your potential margin is a little skinny in the first place, you could find those fees eating your entire margin away, or even worse than that, you might even end up having to throw cash at your project to bring it to a successful conclusion. Accurate arithmetic is an essential. Never stray off your planned path.
Three: Set a ceiling limit to your bidding, and NEVER bust it. In the heat of the moment, in the excitement and anticipation of the auction room, a room that can be packed with eager buyers orchestrated by an experienced enthusiastic auctioneer, it is very easy to become sucked into the excitement of the moment. It is very easy to be persuaded to pay more than you meant to. When the auctioneer says laughingly come on, whats another 5,000? Or youre not going to miss it for a mere 5,000 are you? Remember that this is your money he is talking about, coming out of your profit margin. As soon as you hear comments such as that, you should be reacquainting yourself with your absolute maximum figure.
Never forget, it is the auctioneers job to relieve the buyers of as much money as possible, and youre one of the buyers! The auctioneer is NOT your friend, he is not acting for you, he is acting for the seller, so treat them with the utmost care. Set a ceiling price and dont bust it. There is always another property round the corner; there is always another auction next week or next month. And ask yourself this: would you rather buy the property you really want, at 25,000 over your maximum price, or would you prefer to pick up a bargain next time? Some times it can take a very long time to get rid of a badly bought property. So don't buy bad!
Four: Read the contract terms, read the auctioneers terms. This is most important, for if you dont read all the small print, what are you letting yourself in for? For example does the auctioneer charge a buyers premium? What charges will they levy on you? What methods of payments will they accept? How much of the full cost of the house will they expect you to pay when the hammer falls? If you dont read all the small print, how will you know what you are agreeing to. The small print is there for a reason, and it is saying something. It is up to you to make sure that you know what that is. Remember, when the hammer falls, you are contracted to buy that property, come what may, and that includes all the terms and conditions that the auctioneer laid down beforehand. There is no turning back. If you dont know the terms, you are asking for trouble. Read the contract terms thoroughly, every time.
Five: Get to the auction in good time. Find yourself a nice seat and listen carefully to the opening announcements. Just like the terms and conditions, these announcements might be important. Youll miss them if you arrive twenty minutes late, and you would only have yourself to blame. Pay attention to what is happening, and listen carefully. Dont worry about scratching your nose and buying a house by mistake. That doesnt happen. And before the time comes for you to get involved, decide how you are going to bid. You could raise your hand, you could catch the auctioneers eye and nod aggressively, you could wave your card or program, but stick to one method. Auctioneers can become confused if one moment its a nod, the next a nose scratch, or an ear pull!
Buying a property at auction can net you a bargain, but only providing you have done your homework beforehand. Dont allow yourself to be caught out on basic errors, and the chances are you will find it an exciting experience, and walk away with a bargain. Never worry if you miss a particular property, for there is always another one around the corner, and there is nothing worse than paying far too much just because you fell in love with it.
