Foreclosure Auctions Soaring But Prices Stay High

While the number of foreclosure auctions is soaring, many transactions aren’t taking place at asking prices because some lenders are demanding too much, brokers and investors say.

Many investors, who make up the bulk of active bidders at auctions, say the banks are asking too much for the homes, essentially outbidding them on the courthouse steps. So far this year, 748,381 homes—or 46% of the foreclosures—have gone into the possession of the banks as real-estate owned, or REOs, because no bidders were interested in them at auction.

With the banks’ inventory piling up as the properties fail to sell, the banks will likely have to discount their prices more in order to unload the homes, real estate experts predict. Such discounts could continue to drive the broader real estate market lower.

Few people placed bids at a recent auction run by the Sheriff’s office in New Jersey’s Bergen County. “If you want to go back a few years ago, it was standing room only,” said Don Pfleger, a real estate broker who said he has bought about a dozen properties at auction over the past several years. “Now it’s getting thinner as the weeks go on, as more and more properties are up for sale.” On this day at the end of September, only three of the 23 properties on the block went to a bidder. The remaining 20 went back to the banks.

In Minnesota, due to tough consumer protection laws, it's rare that anyone but the bank that holds the mortgage is bidding on homes at a sheriffs auction. Because defaulted homeowners have up to 6 months to reclaim their property, there is little incentive for investors to bid on homes in foreclosure auctions. Still, banks are asking premium prices for foreclosed homes they have acquired, rather than risk writing down huge losses. Unfortunately, this seems to be only a short term strategy for the bank, as most offers are going to come in for less than the banks asking price. Source WSJ and other information.