Auctioning property has become a very popular means of selling real estate this year

Gramercy Auctions has recently undertaken the sale of 47 properties using a ballroom auction method. The group of properties consisted of residential vacant lots, single family, and multifamily houses around the outer boroughs of N.Y.C. We have found that one of the casualties of the subprime meltdown has been the local middle-income housing developer and investor. We have found many investors holding anywhere from 3 to 150 houses. These houses are the products of either ground up building or rehabilitating older, blighted buildings. Many of these houses are in neighborhoods that have potential buyers whose credit risk profile falls under the category of subprime. With foreclosure rates up 60% this year auctioning property has become very popular. According to estimates of the National Association of Realtors, 30% of all real estate will be sold through auctions by 2010. More real estate is being sold by auction every year. Real estate auctions generated $58.4 billion in 2007 according to the National Auctioneers Association. Residential real estate auctions generated about $17 billion last year, up 5.3% from 2006. Auctions are not only for foreclosed properties. They are an excellent means of selling any property where the property's value is in question, such as in a changing or weak market. Real estate auctions condense the usual communications between broker, attorney, seller and buyer that are typical of a traditional sale. Auctioning real estate is becoming mainstream, in part due to the recent housing situation. The question for real estate professionals is how far the popularity of auctions will continue once the housing crisis ends. But as Chuck Cary of Sotheby's International Realty recently declared, the "auction process may have had a negative connotation in the past, (now) it is certainly looked at more favorably." There are two important elements that contribute to the interest in auctioning property. First, there is the belief that maximum value is realized when purchasers openly bid against each other. Second, there is the assumption that the fast paced process of auctioning leads to the most rapid and surest completion of the sale. Auctions turn buying a property into a one-time event. When there are many properties on the market there's no incentive for the buyer to make an offer. In contrast, when an auction is well advertised a spotlight is shone on a property. People know they are coming to purchase something of real value at a fair price and they come to the auction prepared to bid. We find there is no longer a typical property for which this process works. Homes that have either recently been placed on the market, have been on the market for months, or even vacant land, are all appropriate candidates for sale by auction. The overall foreclosure rate in the U.S. went up 75% in 2007. More than 1% of all U.S. households were foreclosed during 2007, and that number has increased further through the beginning of 2008. New home sales are down and are expected to fall at least 30% throughout this year. Owning a home is still the best way for individuals to build wealth. The market should become strong again once the current issues are resolved. This increase in foreclosure rate has given auction companies like Gramercy an opportunity to teach buyers and sellers about real estate auctions and make them comfortable with the concept. The current housing situation is not limited to subprime mortgages. Even people with prime credit histories are falling behind on their payments for home loans, auto loans and credit cards, because of the severity of the current economic challenges. About 5.7% of home equity lines of credit were delinquent or in default at the end of last year, up from 4.5% a year earlier, according to Moody's Economy.com and Equifax, the credit bureau. In addition, many buyers who took prime loans in recent years had high adjustable payments. They were allowed to pay less initially but their monthly payments are now increasing due to unavailable mortgage products. Still the economy in New York City is stronger than nationwide and Gramercy Auctions has been doing brisk business for the past year. The process of buying a home at auction is very organized and does not have to be a pressure filled situation. The closer it simulates the natural process of selling real estate, the more successful it is. Gramercy Auctions registers buyers and brokers. The buyers must bring a certified check as an earnest money deposit, and they must agree to the terms of the auction, as defined in a registration form that they sign. The high bidder immediately endorses the certified check over to the escrow agent. There is a contract table where the buyer and seller sign a contract for sale. A date is set for a closing appointment with the title company. Closings occur within 30 to 60 days of the auction. The property is inspected by the prospective buyer before the auction. All sales are on an "as-is" basis. The property is available for inspection by appointment or during open houses. The seller pays a retainer fee to the auction company but there are no commissions or advertising costs. An agent who brings a buyer to the auction receives a commission. All of the elements of a brokered sale are present, but in expedited timeframe. That's the immediate benefit of auctioning which sellers and buyers are noticing. Isaac Glasman is the managing partner at Gramercy Auctions, Long Island City, N.Y.