NEW YORK (CNNMoney.com) -- Going, going, gone: An increasing number of homes are now being sold at auction -- rather than through real estate brokers -- in an effort to dump properties more quickly and efficiently.
Auctions have increased by about 10% a year since the early 2000s, with homes worth nearly $17 billion sold this way in 2007, according to the National Auctioneers Association.
Auction sales have already spiked 14% in the first three months of 2010, according to the group.
"One auctioneer told me yesterday that he's been doing two, sometimes even three auctions a day, up from one a day or less a couple of years ago," said Hannes Combest, CEO of the National Auctioneers Association.
In fact, Robert Friedman, chairman of Real Estate Disposition Corp., said his company has done 195 auctions this year through mid-May, a pace that would exceed 520 for the year, a 50%-plus increase compared with the 340 sales total in 2009.
The biggest auction advantage is speed, of course: From first marketing to closing can be less than 10 weeks, according to Pam McKissick, COO of Williams & Williams Worldwide Real Estate Auction.
Clarity for sellers is also crucial. With most auctions, properties are sold as is. Bidders can inspect the homes beforehand, but they cannot easily back out of the deals without penalty. Sellers pretty much know that when the gavel descends, the house is sold.
Plus, Friedman stressed, price discovery is an important part of the auction process, as well as savings. Most homes sold are near market value but rarely above.
For his company, the main contributor to its added sales volume is the flood of bank repossessions. "We are almost entirely REO at this point," he said, referring to real-estate owned properties, the industry term for homes taken back by banks.
There is such a huge volume of REOs on the market -- 92,000 homes were seized in April alone -- that banks are anxious to turn the properties over quickly. Rather than waiting for the local housing market, they turn to auctioneers.
Another boost to the auction market has come from new developments gone bust. Big tracts of single-family homes and, especially, condominium projects planned during the boom didn't get finished until after markets nose-dived. That left developers with huge loans on properties they could no longer move.
As a result, these developers -- or the lenders who took over after they defaulted on their construction loans -- usually want to sell homes quickly to get out from under the ongoing expenses, including the financing costs.
Price declines have added urgency for ordinary people, too. Today, sellers are resorting to auctions after watching their homes languish on the market for months.
"We're seeing more movement in that market from what we were seeing a year ago," said Mike Jones of United Country Auction Services, whose company primarily works with conventional sellers.
Often, they're disillusioned by brokers who have been over enthusiastic about the prices their homes can fetch. When markets were bubbling, even badly overpriced homes were selling, and buyers were rescued by soaring market values. It's a different story in the downturn. As overpriced homes languish on the market, the gap between asking prices and market values only balloons.
Agents then must persuade sellers to slash prices, sometimes more than once, as the prices race the market to the bottom. Eventually, selling at auction can seem like a more viable solution.
Plus, sellers have little leverage these days. Buyers are filling contracts with contingencies that enable them to seize on any shortcoming to renegotiate, or back out of, deals.
"At this point, 80% of our clients have lived through this scenario," said George Graham, CEO of Concierge Auctions, a dealer in high end residences.
|Overnight Avg Rate||Latest||Change||Last Week|
|30 yr fixed||3.60%||3.72%|
|15 yr fixed||2.77%||2.69%|
|30 yr refi||3.56%||3.59%|
|15 yr refi||2.77%||2.75%|
Today's featured rates:
Sumner Redstone's National Amusements issued a warning Tuesday to Viacom executives who are fighting to keep their board seats, telling them that their legal challenges are futile. More
Investors are already sifting through the Brexit market rubble for opportunities. Morgan Stanley compiled a list of highly-rated stocks that have limited or no direct exposure to the situation in the U.K. More
Facebook has redesigned the share tools on other websites, part of a larger set of changes designed to spur more sharing on Facebook. More
In 1998, Ntsiki Biyela won a scholarship to study wine making. Now she's about to launch her own brand. More
Chipotle is set to launch a customer loyalty program that starts July 1 and runs through September. More