This morning, I attended a real estate auction in Friendship Heights. I discovered that two properties in our neighborhood were on the list to be auctioned off, so I wanted to see how they performed at auction. I also came prepared with a deposit check – just in case an opportunity presented itself. I walked into the office and took a seat amongst the rows of chairs at about 15 minutes before 10am – the starting time of the auction.
The first contact from the auctioneer consisted of several “kill” announcements. This means that properties were being taken off the auction block just minutes before they were supposed to be auctioned off. At the time the first kill came, about 9:55am, there were a little less than a dozen people present. The first kill was some random property that I don’t think anyone was interested in. A couple of minutes later, about 3 more kills came. The auctioneer began the announcement with, “The 7th Street at 10:12am” and one gentleman shot a shy smile at his friend across the room. I think there was a collective “darn!” as soon that announcement came. Two other properties in our area were also killed: one on Mass Ave, and another at 5th & Q St NW. I had been there only 15 minutes and I was already ready to leave. But, I thought it would be a good experience to at least stick around to witness one round of auctions.
Just after 10am, the room was packed with 2 or 3 dozen people. All of the chairs were taken up and people were standing along the walls (one person commented, “it is busy today!”). Finally, three properties were announced to be auctioned off. They all had deposit requirements of over $30K, so the auctioneer asked if anyone was interested in bidding and to verify their deposit check. Only one gentleman said yes. The auction commenced and the gentleman did not bid on any of the properties. After that, I headed for the exit!
Before the auction started, I tried to figure out what every bidders’ intentions were. I was obviously only there to bid on the 7th street property and I think a few other people were there for the same single purpose. Two women who arrived after the 7th street property had already been killed, were very disappointed when it was announced for a second time. As mentioned earlier, one gentleman meant business and had a large deposit check in tow. Some people in the back of the room sounded like they had just gotten out of a class that taught how to buy foreclosures; they were learning the ropes. Others just appeared to be there for the entertainment.
One valuable lesson learned from the experience is that some of the auctions that look like really good deals are actually for 2nd trusts (loan). Meaning that if you win the auction on a 2nd trust, you would also have to assume the full value of the 1st trust (the larger of the two loans) to actually own the property. The past 5 years of loose lending seems to have eliminated the possibility of finding a good deal at a foreclosure auction. Most of the properties had loans that were probably near 100% of the value.
In the past 5 years, there was little reason to go into foreclosure – as long as you had equity in the home, you could easily get cash out to pay for anything – including your mortgage payments. But, if no equity is left, foreclosure is probably the most appealing option. Those lending actions basically torpedo any possible “deal” at a real estate auction – no bidder wants to assume the full value (or sometimes more than the full value) of a property.
Realizing that this was probably a waste of time, there was one notable lighter side of the experience. As one person was discussing the list of properties, I couldn’t help but grin when I overheard the potential bidder say, “That 7th street property is in Gallery Place. That’s *nice*!”