The ballroom of the Renaissance Long Beach Hotel had all the feel of a livestock auction on a recent Saturday afternoon.
An auctioneer stood at a lectern and in a rapid-fire staccato called out prices as a team of attendants known as "ring men" held up cards with bids from the floor.
What they were selling, however, were not steers, but houses.
The real estate market may be in the dumps and foreclosures hitting record highs, but that has meant nothing but a darn good business for some folks.
"It's an exciting time," said Brad Pace, sales manager for Hudson & Marshall, a Dallas-based company that conducted the Feb. 28 auction. "Business is very good right now. There's lots of product out there to sell."
Hudson & Marshall, which runs a nationwide business, is among the biggest and best known of a handful of companies staging an increasing number of public foreclosure auctions in Los Angeles and the region.
Despite a credit crunch that has made it hard for many buyers to close a sale, the company has sold 3,000 homes in Southern California in the past 18 months. The auction house makes money by adding a 5 percent commission to every winning bid.
But it's more than just the auctioneers benefitting: Banks unload hard-to-move properties they have no desire to own; brokers, who get a commission on foreclosure sales, say the auctions are driving business at a time when there is little; and buyers both investors and, increasingly, owner-occupants purchase homes at about 80 percent of their already low list price.
Delores Conway, director of the Casden Real Estate Economics Forecast at USC's Lusk Center for Real Estate, said the auction business is booming as buyers are attracted to the bargain prices.
"A lot of investors have already moved into the market," said Conway. "They were buying up foreclosures last summer."
Rule of the game
Hudson & Marshall has been conducting real estate auctions exclusively since 1999, but the business markedly improved last year when foreclosures started sharply rising, said Dave Webb, co-owner of the auction house.
Indeed, California is second only to Nevada in the number of foreclosures per capita. In January alone, 76,761 properties were in the foreclosure process statewide, including 13,581 in Los Angeles County.
Hudson & Marshall holds auctions every three months or so in Southern California, setting up in various meeting rooms for one-week straight. The properties are turned over to the auction house by banks if brokers have not been able to sell them.
In last month's Long Beach auction, 113 houses with list prices ranging from less than $100,000 to more than $500,000 were put on the block.
All the distressed homes are first advertised at list price on the company's Web site, where about 40 percent are sold through a standard sales procedure.
Those not sold then move to the live auction. There, potential buyers some of whom prefer to be represented by real estate agents must be prequalified for financing. They also are strongly urged to preview properties in which they're interested, all of which are shown the prior weekend. All registered bidders must be prepared to present a $5,000 "earnest money" cashier's check on each successful bid. The money, which is refundable should the deal not go through, is credited toward the purchase price.
"The auctions help both sides," Webb said. "The buyers get discounts and the banks move lots of properties in a short period of time."
About 80 percent of the sale contracts are signed at the auction. About 10 percent are completed within a week; in those cases, typically, the winner's bid is lower than the sellers wanted and the two sides need to negotiate further. The final 10 percent never go into escrow because the parties can't agree on the terms, Webb said.
"You've got to do your homework," said Patrick Desimone, a Realtor at Re/Max Olson & Associates in Northridge, who attended the Long Beach auction even though he wasn't a listing agent on any of the properties.
Desimone was the listing agent on three properties that sold at public auctions in the past 12 months when the buyers made acceptable bids. "At the last auction we had a round of tequila. The buyers were very excited," he said.
There were lots of winning bidders at Saturday's three-hour auction, where about 70 properties sold for an average of $150,000.
Within those parameters, however, was a very large range of bids. A two-bedroom, one bath, 672-square-foot fixer-upper on West 69th Street in Los Angeles went for $61,000. A nearly 2,000-square-foot home on Morella Avenue in Studio City went for $561,000.
Among the satisfied buyers was Zabi Nowaid, a 32-year-old lawyer who bid $88,000 plus the 5 percent commission for a two-bedroom, two-bath, 1,212-square-foot house on Oneil Street in Los Angeles.
"I feel great," said Nowaid, who plans to fix up the place, which sold for $385,000 before it was foreclosed. "Two years ago I couldn't afford to buy."
The agent representing the bank, broker Juan Carlos Garcia of John Stone Realtor in Hollywood, said Nowaid's winning bid was very low and would still have to be approved. However, given how the home had languished for more than 100 days on the market and needed significant cosmetic work, Garcia thought it likely would be OK'd.
"The average buyers would be deterred, because it needs $10,000 to $15,000 worth of work. But he will get instant equity," noted Garcia, who said he would have bid on the house himself but was barred from doing so as the listing agent.
Garcia said the auctions have provided much needed income for agents like him in a very slow sales environment. "They give us more exposure and help us move inventory just sitting in our office. The more (distressed) properties we sell, the more we get assigned by the banks."
Not everyone, however, got what they came for.
Patricia Sheppard, of Los Angeles, sat tensely focused, surrounded by relatives as pictures of each property were projected on two screens. When they got to No. 18 on the roster a two-bedroom, one-bath 688-square-foot house on East 66th Street in Inglewood Sheppard sprang into action. She whispered her bid to a nearby ring man who held several fingers up for the auctioneer to see.
"I own the house next door and want this one for my grandchildren," Sheppard explained.
But that was not to be: The winning bid of $130,000 squeaked just past her best offer of $127,500.
"I'm disappointed," she admitted later. "It went above my limit, and I had to be responsible."
For reprint and licensing requests for this article, CLICK HERE.
Stories You May Also Be Interested In
- Entrepreneurs Snap Up Foreclosures on Courthouse Steps
- Buyers Pounce as Homes Go on Block
- Lack of Low-Priced Homes Slow Sales in July
- Home Sales Climb as Buyers Finally Step Up
- Auction House Sees Lots of Advantages in IPO
- Condo Broker Bids for TV Fame
- Sales Increase as Home Prices Fall
- Uptick Seen in L.A. Home Sales