Auctions bid for more home sales

August 28, 1994|By Lorraine Mirabella | Lorraine Mirabella,Sun Staff Writer

The elderly widow needed to quickly sell her custom-built, waterfront home near St. Michaels, to close a chapter of her life and move on.

The suburban builder hoped to boost dragging sales in his single-family subdivision, to cut mounting costs of labor, marketing and utilities on unsold homes.

Neither was in financial straits. Both put their properties up for auction -- and sold them fast.

The residential auction, once considered a last-ditch resort of bankrupt property owners, has gained wider acceptance as just another way to sell a house, according to real estate and auction specialists.

For years, Long & Foster Real Estate Inc., the Baltimore region's second-largest real estate company, has contracted with an auction company to sell homes for builders or investors. Now the agency has formed an in-house auction department, targeting potential clients such as homeowners, builders, and commercial or residential investors who want to sell real or personal property.

"We're hearing more about real estate companies and property owners who want to sell property through auctions," said Liz Duncan, a spokesman for the National Association of Realtors, who said condominiums have been sold at auction for some time but single-family home auctions are becoming popular, too. "Some don't even try anything else. A lot are nice properties, not fixer-uppers."

Why sell at auction?

"The consumer gets a lower price, and the seller or builder is able to sell a lot more homes quickly," said Todd Ottenstein, vice president of Long & Foster's new department.

That's how it works theoretically, anyway. Auctioneers spend about six weeks promoting the event, showing the home and qualifying bidders when possible. After opening bidding at a pre-set minimum price, the auction or real estate company awards the home to the highest bidder. The property is almost guaranteed to sell, Mr. Ottenstein said.

Sellers might get less than their asking price and must pay an auction fee, typically six percent. But they could save money otherwise spent on a real estate agent's commission, buyers' closing costs or other costs of keeping the home on the market for a prolonged period, he said.

Buyers usually can get a house for less when buying at auction. Myths about bidding wars driving prices above market value persist, Mr. Ottenstein says. But properties rarely sell for more than they're worth. In fact, auction buyers typically get properties for an average 11 percent less than the asking price, he said.

Four months after her husband died, Lillian Cannon moved from the home she and her husband built in the mid-1970s for their retirement on Broad Creek, near St. Michaels. The 12-room, shingle house on eight acres had water views, a master bedroom sauna and a large wine cellar. But the large house had just two bedrooms. The empty house sat on the market from last October through June, when Mrs. Cannon's daughter, Carolyn Eagan, suggested trying an auction.

"You're taking a gamble," Mrs. Eagan said. "You could get more money or get minimum price. If no one showed up, the house would go back on the market."

The auction was set for the end of September, with minimum bid set at $475,000. But before the event, the house sold for $525,000. Mrs. Cannon's auction fee was partially refunded. The house had stayed on the market, with the original asking price reduced. Mrs. Eagan says she believes the house finally sold because auction plans sparked renewed interest.

Besides sparking interest, auctions can eliminate competition, especially in the case of developers trying to sell multiple properties, Mr. Ottenstein said.

Jonathan Cutler, president of Maryland builder Legend Homes, auctioned new homes in Legend Meadows, a single-family subdivision in Clinton, in Prince George's County.

"This project wasn't a distress situation, but sales had been slower than we had hoped for," Mr. Cutler said. "We weren't getting the number of people through the project we'd like on a weekly basis. With an auction, you pique people's interest."

Once advertising began six weeks before the auction, the number of people through the homes jumped from about 10 a week to nearly 100 a week, Mr. Cutler said. Five homes sold at auction, another 13 sold either prior to or following the event, Mr. Cutler said. Of 18 sales, five fell through. The auctioned homes sold in the $160,000 range, well below listed prices in the $180,000 range.

"For us, this was acceptable because you don't have to give closing costs, and some other expenses are less," he said. "We were very nervous, but we'd do it again. You put up one or two homes absolute and worry they'll go for too little. If you can sell the home quickly, even if you have large up-front costs, you cut interest, supervision and labor and marketing costs. It actually turns out you can afford to take less."

Auctions have become more popular as companies have made them more user-friendly, showing properties and explaining the bidding process ahead of time, said Mr. Ottenstein, who came to Long & Foster from a large auction company in Washington.

"It's not such an exclusive thing to go to an auction," he said.

Ron West, president of Towson-based Harvey West Auctioneers, which specializes in residential and commercial real estate auctions, says non-distress auctions are becoming more popular, though now they account for a small percentage of his company's business.

"It's the fastest way you can sell your house," he said.

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