Interested in Foreclosures? The Privatization of Foreclosure Auctions

Considering buying a foreclosed home? Private auction companies offer an alternative to sheriff sales, which can be inefficient and time consuming. Privatized sales are increasing in Ohio, as lenders experiment with them and are impressed by the results.

How it works: After a judge rules in favor of a bank's foreclosure suit, the lender petitions the sheriff to auction the property. However, the lender can instead ask the judge to appoint a private auction company. This little known state law explains why privatized foreclosures are still rare.

Benefits: Private auctions allow homes to be marketed in conventional ways, i.e., through advertising, open houses, and appearances on real-estate sites fed by the MLS. Potential buyers can see and inspect the inside of the home for themselves. By omitting the bank from the process, private auction sales speed up the process, which is more mainstream. It also allows a homebuyer's agent to earn a commission. Sheriff sales, on the other hand, neither market homes nor offer a commission. They attract few bidders, causing banks to buy back the properties to safeguard their investments.

The Numbers: Barry Baker, founder of Ohio Real Estate Auctions, shared that while 90% of properties auctioned at Ohio sheriff sales had to be bought back by banks, banks have bought back less than 5 percent of the 100+ foreclosed properties that his company has auctioned. Moreover, Baker's company sees many properties that have already, and unsuccessfully, gone through the sheriff-sale process.

Disadvantages: Buyers may have to pay more for a foreclosure auctioned by a private company. The Columbus Dispatch provided one example. A Geauga County property was originally auctioned by the government with bids starting as low as $73,300--with no takers. The property was then given to a company, which marketed it, attracted over 20 bidders, and sold for $170,500--more than twice the original bid in the sheriff sale. While the price for the home mostly increased due to competition resulting from marketing efforts, private auction companies can charge a fee for their services and for the commission to the buyer's agent. Ohio Real Estate Auctions charges a 10% buyers premium to cover such costs. Another debatable disadvantage deals with the fact that a government function is being replaced by a private one. Executive director of the Buckeye State Sheriff's Association Robert Cornwell fears that private auction companies are mainly profit driven, whereas the government works for the people. He is also concerned that sheriffs may be reluctant to give up one of their long-standing duties.

Overall, private auctions market a home conventionally and allow for a quicker, more efficient process that differs much less from non-forclosures than sheriff sales do. For more information on how to buy a foreclosed home, watch the brief video, below.

Predictions of the 2014 Housing Market

An article published by Realtor.com discusses five trends that experts predict to see this year:

1) Stable Inventory. 2013 was noted for its historically low inventory. In previous months, inventory gradually increased, although average age of inventory is still lower (down 11% in 2013), illustrating the fact that homes are selling faster than they were in 2012.

2) Positive Equity. Increased home prices helped 25 million homeowners regain positive equity status during the second quarter of 2013. Median list price for homes in October rose 7.57 percent above that of October 2012. Home prices are expected to continue increasing in 2014, which is good news for the 7.1 million homes still in negative equity (as of the second quarter of 2013).

3) Fewer Foreclosures. Foreclosure inventory has dropped to multi-year lows, indicating that foreclosures will have a minimal impact on the 2014 housing market. In fact, September 2013 marked the 36th consecutive month with a year-over-year decrease in foreclosure activity. 

4) Increased Mortgage Rates. Even though mortgage rates have already increased 100 basis points in 2013, they are nonetheless expected to rise. Janet Yellen, the chairman-designate of the Federal Reserve, pledges to continue the policies of Ben Bernanke, including keeping mortgage rates low by buying blocks of mortgage-backed securities.

5) Less-Afforable Homes. Increased home prices have outpaced increased income, resulting in the lowest Home Affordability Index in five years (as published by the National Association of Realtors).

While some of these patterns are favorable and others are not, it is important to remember that they are only speculative. The real estate market changes every day, alongside changes in the general economy. Keep up with my blog in order to stay informed of real estate market trends!

Distressed Properties Down as Market Recovers

This summer, supply of conventional homes has decreased while demand has increased. But what about foreclosures? According to In Contract magazine, the number of lender-mediated properties, commonly known as distressed properties (such as short sales and foreclosures), for sale in Central Ohio dropped by nearly 50 percent in the first three months of 2013. The inventory of distressed properties fell by 42.2 percent from the first quarter of 2012 to the first quarter of 2013. Meanwhile, distressed property sales increased by 19.9 percent. Perhaps more interesting, the number of closed sales for lender-mediated properties succeeded the number of new listings by more than 10 percent, meaning a good number of distressed properties that have been sitting on the market for awhile have been sold. Nonetheless, the sales mix is “shifting away from distressed properties and back toward traditional homes.” Supporting this claim is the that fact that the sales price of distressed properties has increased by 1.6 percent in the past year, while the sales price of conventional homes has increased by 4.2 percent (averaging $64,000 and $163,000, respectively).

These statistics speak to the market’s recovery, as Central Ohio has witnessed a very active market in the past couple of months. In fact, according the Housing Market Confidence Index released by the Ohio Association of REALTORS, 96% of Central Ohio REALTORS classify today’s market as “moderate to strong,” and all expect it to remain so over the next few months. Home prices and appraisals are largely believed to stay the same, or increase, in the year to come. Interested in buying or selling? Contact me--I would love to help.