You can get a good deal -- and, these days, wider choices -- at a real estate foreclosure auction. But first-time buyers need to do their homework.
Over the rush of traffic, homes were being sold and big money was changing hands.
Jon Rosen couldn’t believe his eyes.
The 27-year-old Belltown resident was viewing King County’s weekly home auction for the first time in hopes of someday nabbing a good deal on a foreclosed home. He was shocked by the informal, old-fashioned proceeding.
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Three auction criers rattled off lists of homes available, barely audible over the street noise. Bids were handwritten on a sheet of paper as bidders — many of whom are regulars — called out their price.
“I think it’s crazy,” Rosen said. “It’s an odd process for this day and age.”
It’s also gaining more attention locally and nationally as the number of foreclosed properties swell.
The auctions are attracting novices like Rosen who want to learn more about it, as well as experienced real-estate investors who are looking for additional opportunities.
Houses sold at auctions in King County (in downtown Seattle and at a site in Bellevue) have increased about 29 percent this year compared with 2006, (from 529 to 680), according to Dean Street & Associates, a real-estate firm in Bellevue specializing in foreclosures.
Foreclosed-property sales jumped 90 percent through last month in Pierce County (from 396 to 753).
Similar figures were not available in Snohomish County, but the number of homes entering the foreclosure process rose 17 percent (from 1,316 to 1,534), according to Dean Street figures.
Those numbers also include properties that revert to the lender if no one buys them at auction.
The actual number of foreclosed properties in each county is much higher than the number that go to auction. About a third of them never make it to the auction block because they’re held up in bankruptcy proceedings or sold beforehand, according to Dean Street & Associates.
As more houses are sold at auction, investors have a wider selection and, lately, the deals are often better because banks and mortgage companies are willing to take a loss to offload the properties.
On average, buyers of foreclosed homes see a savings of about 18.5 percent in the Puget Sound area, according to ForeclosurePoint.com, a Web site launched earlier this year by DepotPoint in Bellevue.
Auctioned houses run the gamut, from new small condos in South King County to large old homes on Capitol Hill.
“You can find some very interesting properties at auction,” said Chris Matty, chief marketing officer for DepotPoint.
Home auctions can be a minefield, though, especially for first-timers.
For one thing, a prospective buyer can’t always see the inside of a foreclosed house before the auction, because it’s considered private property; it’s possible he’ll get stuck with something that needs costly repairs.
Buyers who don’t do their homework can also get strapped with a lien they’re not aware of, obliterating their good deal.
The weekly home auction in downtown Seattle shows how the process can be particularly intimidating to novices.
In addition to the informal process, the auction is ruled by something of an old boys club, a group of competing real-estate agents who show up every week.
They’re in it to make their investor clients a deal and they know all the ins and outs.
Dean Street, 67, has been attending the weekly auctions for more than 30 years. He’s in his element at the sale, joking with his competitors — among them The Foreclosure Group of Seattle — and heckling the auction criers.
“Hurry it up, it’s cold out here,” he said to auction crier Tara Turpen, who was busy rifling through a list of properties. She merely smiled — after 7 ½ years on the job, she’s used to the teasing.
“I like it,” she said. “But weather can be a factor and we get people that don’t understand.”
Newcomer Adam Wilkes, 32, of Seattle, bid on a four-bedroom Seattle house but lost out to one of the regulars.
The 1,730-square-foot house on the north side of Lake Union had an estimated market value of $621,500 and went for $412,500, a 34 percent savings.
It didn’t bother Wilkes, though, because he didn’t expect to buy a house on the first try.
“This was the nicest house in the nicest neighborhood,” he said. “But I have a lot of others in less-great neighborhoods that I’m looking at.”
Even more challenging is the financing: Buyers have to show up with the full amount of their winning bid to be able to buy a house at auction. (Most use cashier’s checks.) While there are loans available for that, they often come with a high interest rate.
“What I say is, ‘Yes, you can find a good deal at an auction. But you have to be very patient and very logical,’ ” said Matt Steel, a real-estate agent who specializes in foreclosure sales for Real Estate Investment Firm, a Seattle company he owns.
Lately, the deals have been getting better. Mortgage companies, eager to sell a growing number of foreclosed properties, are willing to take a hit to save their balance sheets.
They’re dropping their opening bids on about 25 percent of all properties going to auction, reducing them from 19 to 47 percent in one extreme case, according to ForeclosurePoint.
About 9.5 percent of properties on the auction block in King, Pierce and Snohomish counties revert to the lender and become what are known as REO (real-estate owned) properties.
That’s a much lower rate than in such markets as California, Nevada and Arizona, where the number of foreclosures have soared, and sometimes 75 percent or more of homes end up back with a lender.
“In a normal market, [mortgage companies] would have a few thousand homes on their balance sheets,” Matty said. “Now there’s a multifold increase nationwide. That’s billions of dollars.”
Scooping up a deal on a foreclosed home can seem attractive — especially in the current market — but the system is rife with risks for the average homebuyer.
Take, for example, Brian Truman, 31, who recently bought a three-bedroom house in Kent for $262,776, 26 percent below its estimated market value.
While Truman has bought several houses at auction before with partners, this is his first solo investment.
He knew from research that the home came with a $63,390 lien, decreasing the value of his investment.
What made him nervous was the unknown condition of the house.
“Out of 10 properties you purchase, there’s one that’s a home run, several that are break-even and a couple that are horrible,” Truman said.
He said he was waiting to see the inside before he decides whether to hold onto it as a rental or sell it after some renovation. In this market, more auction buyers are looking at holding onto their homes for a while.
Renting out the home is something that Dean Street, whose real-estate company bears his name, is recommending to investors.
“Our rents [in the Seattle area] are going up about 15 percent,” Street said. “That’s a heck of a return on an investment.”
Another tip for homebuyers who are thinking of purchasing a property through auction for the first time: don’t go alone and don’t be impulsive.
Foreclosure experts recommend attending an auction at least several times and bring a knowledgeable real-estate agent.
This is especially important because there’s a lot of money on the line: the cost of the house.
“You really need an accurate picture of what’s going on and you need to research,” Steel, the real-estate agent, said.