Get out your auction paddles. At the Jacob Javits Convention Center next Sunday, California-based real estate auction marketing company Real Estate Disposition Corporation is auctioning more than 375 foreclosure properties from northern New Jersey, northeastern Pennsylvania, and the New York City metropolitan region.
Opening bids are quite low. On REDC’s Web site, the starting bid for a two-bedroom house at 118-41 153rd Street in Jamaica, Queens, that was previously valued at $220,000, is $500. And the starting bid for another Jamaica home at 145-22 106th Avenue is $69,000. The property was previously valued at $555,000. All properties are available for inspection before the auction. According to REDC, about 65 or 70 percent of the properties are in turnkey condition whereas the other 30 percent need some degree of work.
The glut of foreclosures is spurring banks and mortgage servicers to explore new ways of unloading foreclosed properties, according to Jeffrey Friedan, CEO of REDC, which auctions foreclosed properties for a 5 percent commission on the final sales price.
“With the flood of foreclosures and decline in home values, the lenders came to the realization that a volume model was needed to move this inventory faster,” Friedan wrote in an e-mail, adding, “The financial community previously viewed auctions as a last ditch effort.”
While a sense of doom and gloom is pervading much of New York City’s residential real estate market, business in REOs is picking up. REOs are foreclosed properties that have been repossessed by the bank when they fail to sell at mandated court foreclosure auctions. Before the downturn, many foreclosure properties were sold at court auctions where mortgage servicers generally attempt to recover the amount of the mortgage in addition to mortgage interest and lawyer’s fees.
However, with the fall in residential real estate prices, business has been relatively slow at the courtroom auctions and mortgage servicers are increasingly selling foreclosed properties at discounts either through brokers or at commercial auctions such as the one that REDC is holding.
In New York City, REO brokers say that they too are selling houses at a brisk pace. Brian Silvestry of Long Island City-based BSRG Realty says that he has been selling about six to eight REOs a month for mortgage servicers at prices that he says are typically 15 percent cheaper than market rate.
“Two years ago, we were selling properties for mostly retail buyers and sellers,” Silvestry said. “Now 100 percent of our business is foreclosures — there is just not a big incentive to work for regular retail sellers because they have to be able to price at an REO price to sell in today’s market.”
Other REO auctions take place solely online such as the ones run by the Oklahoma-based auction company, Williams & Williams, which last year sold 66 REO properties with a total value of more than $14 million in the New York City metropolitan region.
According to Dean Williams, chairman and CEO of Williams & Williams, one of the major advantages of selling properties at an REO auction is that it allows sellers to get the highest and best offer in a depreciating market, where the traditional approach of setting an asking price and waiting for it to sell through a broker has become a riskier proposition.
The broker price appraisals “are all over the board” whereas “this give you real-time solid value,” Williams said. “For an individual buying it makes sense to buy on the exchange because you know what everyone is willing to pay — it is more valid and more sustainable.”