Recently here in Orlando there has been a number of infomercials for USHOMEAUCTION.com their claim to fame is that they will help you buy a foreclosed home at reduced prices. Skeptical of this infomercial I started to do some preliminary digging on this company and here is what I have found out as of today.
Excerpts taken from
November 11, 2007
by Binyamin Appelbaum | Boston Globe
USHomeAuction.com is a subsidiary of LandAuction.com which is held by NRP Holding Company, Inc. Real Estate Disposition was founded in 1990, but before this year the business had been dormant for a decade.There was little need for its services during the real estate boom.
The company’s founders, Jeffrey Frieden and Robert Friedman, turned instead to selling undeveloped land. A company they founded, National Recreational Properties Inc., bought large numbers of lots in the Sun Belt, then marketed the properties in infomercials often featuring “CHiPs” star Erik Estrada.
So what does this mean for Realtors and the customers we serve and protect. I've had a few calls from buyers wanting to know info on buying foreclosures at the same prices that these guys were advertising. My response is, well I am not sure that this is the way you want to go in purchasing a home. Unless you know what you are doing most buyers don't know what they're getting into when they purchase at events like these. Here's what happens in this and similar events around the country:
300 foreclosed properties were up for auction at the Hynes Memorial Convention Center in Boston.
The firm is privately held and does not disclose its profits, but the company collects a 5 percent premium on each winning bid, along with fees it charges to property sellers. If you are a Realtor and you take your client and they buy a property at the auction your commission is a whopping 1%....but wait you have to fill out their agent form on the net in order to get your commission and you must do it prior to the event.
The properties are not in the best conditions...
“They don’t tend to be in the best condition,” said Terryanne St. Pierre, an associate broker with Taché Real Estate in Salem, Massachusetts. She said her company had listed several of the houses being auctioned. “They’ve been abused more often than not,” St. Pierre said.
Moldy basements, missing windows, burst pipes, and buckled floors are fairly common, the Globe found in touring some of the houses last weekend. The need for new paint is pervasive.
But the 2,000 or so people who attend these auctions are undeterred. Registration is free, although each bidder is required to bring a cashier’s check for $5,000. After each property is introduced, men in tuxedos rushed around encouraging people to spend money. (check out the guy in the picture on the top left corner)
“Hey, that guy is about to buy your home!” one auctioneer told a hesitant couple. “What’s another $10,000?”
On this weekend auction in Boston properties sold in a few minutes. Winners were escorted to a roped-off area to make a 5 percent down payment, for example, on a $300,000 house - the cashier’s check plus a personal check for $10,000. They were then escorted to an area behind curtains to qualify for a mortgage loan from Countrywide Home Loans.
Countrywide, the nation’s largest lender, has faced scrutiny as many of its borrowers lose their homes to foreclosure. This weekend, the company is attempting to sell some of those houses as part of the auction by Real Estate Disposition Corp.
But there’s an important caveat: The winning bid isn’t binding unless it exceeds an undisclosed threshold set by the seller. So what is this eBay's Reserve Pricing?
In most cases in Boston, the bidding quickly cleared that threshold, spurred by the antics of the auctioneers.
Chris Willis and Eli Sanchez wanted a vacation house on the Cape. They came to shop for bargains, but prices on the properties they liked quickly soared out of range. They were willing to pay $100,000 for a West Yarmouth ranch they considered a teardown. Willis, a Boston real estate broker, said the place looked good but had foundation problems.
The bidding soared past $100,000 in a matter of seconds. The place eventually sold for $200,000, leaving Willis shaking his head. “They’re basically buying land,” he said. “It makes no sense.”
Willis and Sanchez left after an hour.
Mike Gubla, a New Bedford contractor, also decided that the prices were too high.
“There’s civilians bidding here,” he said, explaining that inexperienced buyers were paying more than properties were worth. “I’ll come back next year, and the prices will be better,” he said.
Will they?
Bottom line is that what this company is doing with these forclosed homes Realtors can do and save our clients money in the process. We can contact the loss mitigation departments and negotiate with the banks. The ugly of it all is that inexperienced home buyers are running off to these auctions and are getting in over their heads. I researched the following Orlando property on the USHomeAuction.com website:
http://www.ushomeauction.com/property.php?auctionID=H-015&itemID=7978&venueId=61&start=0
They show the starting bid at $59,000 and they show a previous value at $213,000 (which is the purchase price on the property appraiser's website) I'll check back in 30 days to see what the final price paid for this property on the auction went for. The sad part is that the previous owner (who defaulted) is going to get stuck with a bill from the mortgage company for the difference in what the auction sold the property to what is owed, what they paid USHomeAuction.com to sell the property, and any filing, legal charges and made up charges that they can think of. On top of that they will file this outstanding balance with the IRS and the defaulted owner is going to get stuck with all these charges. So who ends up winning here? The Lender and USHOmeAuction.com. Who loses? The defaulted owner (BigTime) and the new smuck who over paid for this property in order not to use a Realtor.
In closing here is what the new owner pays for winning a $300,000 auction with these guys:
1. $5000 check +
2. 5% down personal check $10,000 = $15,000
3. Financing???? They may have to put more money down depending on what Countrywide comes back with when they do the financing.
No security that the home is worth that amount of money, plus no chance to do an inspection.
If they would used a Realtor:
1. Unlimited number of financing options available rather than just Countrywide
2. Probably the bank would of paid 2% commission (I have yet to see 3%) to the Realtor
3. Most important an Inspection that could save them thousands of dollars! Priceless!
The Realtor community needs to educate the public, too many hard working Americans are taken for a ride from property auctions that we would never purchase on our own. Their hard work and years of savings are thrown down the drain of this cash cow that at one point looked liked a great deal, and soon these new homeowners will be facing the same fate as their predecessors.
;)
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