Mike Grigg, AARE

THE CALIFORNIA REAL ESTATE MARKET

Auctions, The New Wave of Real Estate?

By: Mike Grigg, AARE

We have all been told different things about what is happening to the real estate market in California, but the truth is that the market is rapidly declining, about 1-2% a month in areas. Many realtors and their associations want us to believe that we are just in a slowdown and the market will come back in winter or sooner, but this is just wishful thinking. The Norris Group, a real estate investment, hard money loan, and real estate market analysis company based out of Riverside, CA is predicting that the market will continue to fall through 2010 and take one - two years to begin climbing back. Folks, that is 2012 (5 years) before prices will begin to recover! That means that foreclosures and trustee sales will be at an all time high! How do you think banks and individuals are going to liquidate this massive quantity of real estate holdings? You guessed it, AUCTIONS.

According to The Norris Group, in recent history the highest amount of trustees deeds recorded in Southern California was 70,513 in 1997. We are just at the beginning of the downward trend in 2007 and there have already been about 50,000 and rising! People are beginning to leave California to other areas, which is causing a decrease in demand and tons of inventory that needs to be sold. So what does this all mean to the auction industry?

This means that auctioneers are going to be in high demand to liquidate this excess of real estate holdings quickly and efficiently. I'm sure that most of you have driven down a residential street lately and noticed a large amount of "For Sale" signs with the "Price Reduced" signs hanging below. This is not an effective marketing campaign because the signs are staying up and never seem to have a "Sold" sign hanging below. As auctions become more and more popular there are going to be more people claiming that they are real estate auction specialists, when indeed they are not.

Auctioneers must take the necessary precautions to make sure that we are taking on auctions that we can get sold. Because of all the mixed messages that home sellers are receiving about the condition of the market, their price expectations have still not come down much. Before signing an auction make sure that your client is truly motivated to sell their property for whatever the market will bear. If they are not in that type of mindset then pass on the deal and go to the next. Believe me, there will be plenty to choose from, and it is not worth your reputation and the auction industry's reputation to take on an auction that is not going to sell. Remember, you are only as good as your last auction, so make sure you get the property SOLD!

The next 5 years is going to be a buyers' market and auctions are the best way to make the buyers feel like they are in control. Auctions also show true motivation from the sellers, which, in turn, will produce action from the buyers. Just because the market is slowing does not mean that buyers are not going to buy, it simply means buyers want a better deal and they need to be shown where to go when they are ready to buy.

When taking on an auction the sellers need to value time more than money. As auctioneers we need to show sellers that time is money, and the longer they take to sell their property, the more money is being lost with holding costs, commissions and other expenses. My best piece of advice is not to over-sell your program, let the sellers come to you when they are serious about liquidating their real estate. Show them the benefits of an auction and don't make any promises as to what the property will bring; remember this market is in a downward trend and properties are worth less on auction day than they are when you sign the auction. Make sure they understand that an effective marketing campaign will produce TRUE market value on the day of their auction.

Please visit the CSAA website at www.caauctioneers.org for more information about our association, and industry updates. If you are not a member of the CSAA you should be, especially as real estate auctions become more popular and the public is going to want to see that you are part of an organization that promotes and values the auction industry while holding you to a code of ethics. Good luck with your auction business, and remember that you need to be licensed with the California Department of Real Estate and hold a surety bond to legally conduct business as a real estate auctioneer in California.

Being a Member of the CSAA is Industry Standard

Many auctioneers in the state of California are practicing business without being members of the CSAA. This should not be condoned behavior by fellow auctioneers or the buying public. For example, if a real estate agent wants to sell real estate they have to become a Realtor. Because California no longer has auctioneer licensing laws, being a member of the CSAA is that much more important. As auctions become more and more popular in California the consumers are going to want to do business with legitimate auctioneers, which means they will look for members that are required to follow a code of ethics and conduct business in a professional manner.

I have been a member of the CSAA for my entire auction career and plan to stay a member for life. The relationships and conferences have enriched my business and life over the years and I believe that the CSAA has had a huge impact on my success. Just as people don't do business with non-Realtors they will eventually not do business with non-CSAA members. Make the right decision and stay professional within our industry. Spread the word to fellow auctioneers and people within your organization to become members of the CSAA, it will only help your business become more legitimate. Please feel free to contact me with any questions at 661-325-6500.

Mike Grigg, AARE (President, CSAA)

Princeton Premier PRLog (Press Release) - March 27, 2008
Mike Grigg has been named an Honored Member in Real Estate Services by Princeton Premier.

Mike Grigg earned a Bachelor of Arts degree in marketing from the University of Phoenix. He is presently the chief auctioneer of Elite Auctions, a leading real estate auction service in Bakersfield, California. As chief auctioneer, Mike is primarily engaged in the public sale of property, contract negotiation and management of escrow accounts. He is the vice president of the California State Auctioneer Association and is affiliated with the NAA, CAAR, NAR, BBB and the Chamber of Commerce. One significant highlight in Mike's career was his one hundredth property sale which led to his appointment with the CSAA. In his spare time, he enjoys travel and playing softball and is active within his community, supporting the Make a Wish Foundation as well as the Love Inc. organization. In recognition of his dedication and commitment to the Florida real estate industry and for his altruistic efforts, Mike Grigg is being included in the 2008/2009 Princeton Premier Registry where he will be listed among the most accomplished business leaders and professionals in the world.

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About Princeton Premier:
Princeton Premier is the publisher of an exclusive registry comprised of business leaders and professionals making an impact in their industry and community. The online network is a large interactive business community where our valued members use the web based service daily as an online channel to assist them in meeting their specific business goals.

The Associated Press via USA Today - July 16, 2008
Home auctions surge nearly 47% since 2003

NASHVILLE - In a sign of just how broad the real estate downturn has become, revenue from resdential real estate sold at live auction grew about 5% last year and is up almost 47% since 2003, according to the National Auctioneers Association.

Auctioneers say that much of their current business is being driven by home builders reducing inventory, and individuals who can't afford to wait out the real estate doldrums.

Despite the soft real estate market, Beazer Homes USA (BZH) recently sold 26 beachfront condos on the Jersey Shore in 75 minutes.

Christopher Gillen, an executive vice president for Beazer Homes USA, said the condos were the first the company had put up for auction in the area.

Before the auction, Beazer was asking between $400,000 and $850,000 for the condos, but sold them for between the high $300s and the high $700s, Gillen said.

The condo sales "may have taken a year-plus to sell if we had gone a more traditional route of putting homes on the market," Gillen said.

On Wednesday, the National Association of Home Builders said the business outlook of the major builders hit a record low in July. The monthly index posted new lows for sales conditions, shopper traffic and sales expectations.

Yet auctions are proving to be one sales solution for both builders and anxious homeowners.

Tommy Williams, president of association, believes more people are turning to auctions because they're more familiar with them, thanks to eBay.

"EBay introduced a world to the concept of auctions better than anybody. The average consumer began to look at auctions not only as an alternative, but in a positive light," Williams said.

Residential real estate auctions are the fastest-growing segment with gross sales of almost $16.9 billion last year, up from about $11.5 billion in 2003.

But individual property owners aren't necessarily making a profit, or even getting what they paid for the house if they bought in an overheated market. Often the main benefit of an auction is getting out from under rising interest on house notes and paying other expenses like taxes and insurance.

Mark Bratton needed to sell his Hot Springs, Ark., home so he could move into a single-story abode because of health problems. He put the property up for auction through a company near his home, where he says houses today can often sit on the market for up to eight months on average.

"What I wanted was to sell the house and sell it quickly," said Bratton, who recently sold the home at auction about 30 days after listing it with the company. He bought the house in 2005 for $139,000 and put about $180,000 into refurbishing it. When the gavel came down, the winning bidder paid just $275,000.

Marty Higgenbotham, who heads Higgenbotham Auctioneers International in Lakeland, Fla., said homeowners who bought in overheated markets and are selling their properties at auction now are typically only going to get back about 60 to 65 cents on the dollar.

Buyers typically also have to pay a fee, usually 6% to 10% of the total cost, which covers the auctioneers costs and other expenses.

Bernard Markstein, senior economist for the National Association of Homebuilders, said auctions traditionally are not the preferred route for most people because house values are typically not as high.

"The longer you take, as a general rule, you're going to get closer to your asking price ... But if you want to make a quick sale, you will probably have to cut your price more," Markstein said.

But Williams and other auctioneers say if property owners have to sell at a time when real estate housing values are declining in many markets, it's better to sell sooner than later.

Auctionsense - July 6, 2007
Volume 1 Issue 7

Mike Grigg [Elite Auctions] held three real estate auctions on Saturday, June 30. I attended them to see how he was getting along, and get along he did! The three properties totaled nearly $750,000... Congratulations to Mike as he did a great job promoting and calling the bids at the auctions.

While I was driving around the area of Mike's auction I noticed at least 25 for sale signs with "price reduced" on them from various realty companies. About half of them had open house signs. Well need I tell you the power of an auction and the sense of urgency they create? There was absolutely no one at the other listed homes but when I arrived at the auction there were cars parked three blocks away. There was over 100 people in attendance at the auction waiting to compete on the house with no contingencies or incentives offered. Mike sold the house in less than 10 minutes after being on the market with a realtor for a year. The house sold for 398,000 which was fair market value for the area. At least five other individuals approached Mike after the sale to see if he could sell their homes by auction. I will say it again, if you are a realtor you should know how to offer auctions to your sellers and how to co-op with an auctioneer. It will make you money.

The Press-Enterprise - October 20, 2006
New On The Block - Auctions are a fast alternative to homes languishing on market

In a real estate market described as tepid at best, sellers are trying something different to drum up excitement and stand out from the crowd. They're putting their homes on an auction block.

... In less than five minutes, the Highland auction was over. Four bidders upped the ante until all but one dropped out. The four-bedroom, three-bath house with swimming pool... sold for $528,000.

Mike Grigg, auctioneer for Bakersfield-based California Premier Auctions Inc. [Elite Auctions], which ran the auction in Highland, said the process is intended to "get the best price in the shortest amount of time." Grigg said he has seen mounting interest in auctions as the Southern California housing market softens, beginning with investors who are no longer able to "flip" houses.

...The sellers, Henry and Joyce Higginbotham, said they were happy to avoid the months-long wait - a period during which prices could fall. ... An auction can "take a market that has tons of houses in it and say 'just for an hour concentrate on mine,' and then, sure enough, it is sold," said Bruce Norris, a Riverside real estate lender.

...Grigg said sometimes auction companies can "hit a home run" for their clients when, in the heat of competition, the bidding exceeds the property's previous listing price.

Contra Costa Times - November 14, 2006
Home Sellers Turning to Auctioneers for Help

DISCOVERY BAY - Robin Anderson's home here was on the market for six months with no offers when her real estate agent decided to quit. "At that point we thought, do we relist with another agent? What are we going to do?" said Anderson, 35, who owned the home with her husband, Eric, 38. The Andersons' home started off on the market in February at $525,000, dropped to $485,000, and only a handful of people had looked at the house. They started calling "We Pay Cash for Houses" people, she said, where they were offered an average of $350,000.

After moving into a new home and paying three mortgages (two firsts and a second), the Andersons were in a hurry to sell.

"All the real estate agents said the same thing, that nothing's selling and nothing's moving," she said. "Then one of the agents suggested the auction."

Anderson said that she was not as sold on the idea as her husband, but they met with the auctioneer and looked over their proposal. "It really was scary," she said of the idea of putting her house on the block, "...But at least with this option we knew it would sell."

Home auctions increased 4.5 percent in the third quarter from last year, said Erica Brown, public affairs manager of the National Auctioneer's Association, making it the biggest growth sector in the industry -- even surpassing charity auctions.

"People are sick of their home burning a hole in their pockets while they sit for six to eight months," she said. "Now, they're increasingly going to auction."

The Andersons' home, a two-story, three-bedroom, 2.5-bath single family detached home in the 3700 block of Sailboat Drive was opened on two consecutive Sundays for prospective buyers to conduct an inspection or just look around.

Visitors came in clusters, many of them curious neighbors interested in the "Real Estate Auction" sign placed prominently in the front yard, replacing their "For Sale" sign.

"...Times are changing," she said, mentioning that she could not sell one of her homes for what she paid for it a year ago.

Neighbor Debbie Edinger, 42, also peeked at the house at its preview with her brother Don Schauer, 38.

"This is just a new and different way of selling," she said.

In Discovery Bay, 295 homes were on the market in October, according to Prudential California Realty. Discovery Bay has an estimated population of 9,000.

...[buyers]* pay a 10 percent commission, a $1,000 auctioneer's fee and typically any other associated closing costs. Some of that money, like in the Andersons' case, went to real estate agents that represented the buyer and referred the Andersons to the auctioneer.

Vince Malta, president of the California Association of Realtors, said that although auctions are still a small percentage of homes being sold, they are becoming more popular.

"It seems like a trend on both extremes of the market, in both hot or cold," he said.

Malta said that an agent works in the best interest of his or her client, so he or she would have to act as "safeguard" to make sure they were being represented properly in the process.

...Bidders were pre-qualified with a $25,000 cashier's check to bid on the Discovery Bay home.

...The Andersons had to move because they bought an afterschool tutoring franchise in Oakdale and soon began looking at new homes in the area. They received great buyer incentives for their new home, including thousands in free upgrades when they bought a new home in February for $425,000.

But once the couple and their two children (and a third on the way) moved into their new home in July, the reality of paying two first mortgages and a second became a stark reality.

"In the market right now, I don't think there is an ideal situation," Robin Anderson said. "The ideal situation is hanging on until the market turns, but that wasn't an option for us."

...Anderson said she kept her fingers crossed and hoped the house would sell for $360,000, enough to be out from under the home's two mortgages.

"With this you have had the option of knowing it would be done in this amount of time, but you don't know how much you're going to get for it," she said. "But then with a real estate agent, we still don't know the amount of time and how much money you're going to get."

The auction of the Anderson home took only four minutes in front of the house on a recent Saturday afternoon. They did not attend.

The winning bid was $434,500. The Andersons received $395,000.

"I was biting my nails," Robin Anderson said. "But what they said worked."

Daily News of Los Angeles (CA) - November 20, 2005
HOUSE IS GOING, GOING, GONE, AUCTIONED VALLEY HOME SELLS IN MINUTES FOR $708,750

WOODLAND HILLS - Within minutes Saturday, the 1960s-era ranch house at 22142 Tiara Street had been sold, for $708,750.One hundred and three people registered for an unusual auction of the three-bedroom, two-bath house, proffering cashier's checks for $25,000 each to secure their right to bid. Many more people came to watch, crowding around in the front yard in the unseasonably hot November sun.

National Auctioneers Association - October 15, 2005

The value of all residential real estate sold at auction in 2005 is estimated at $13.1 billion. While revenue from commercial and industrial real estate auctions and vacant land and agricultural real estate auctions remained largely unchanged, real estate auctions remain on pace to top $48 billion in gross revenue for 2005.

Loudon Times - Mirror - May 10, 2005

"Selling at auction was great for us," said Aldie resident Tricia Fairfax, who sold her grandparents' property at auction in January 2003. "The property needed a lot of work, and I didn't have the time or money to put into it. We also had a short timeline to work with."

"[The auctioneers] took care of everything," said Fairfax. "They took care of the advertising and getting the property ready. We got more [for the house] than what it was assessed at."

The Fresno Bee - November 2, 2003
Auctions work on high-end homes. Successful ones tap marketing and a dose of bidding psychology.

Real estate auctions may conjure visions of eager buyers snatching up homes at bargain-basement prices. Auctioning pristine homes in desirable neighborhoods can create that same kind of excitement. "Just say the word, 'auction' and it does something to people," says Steve Laubly, a Fresno real estate agent who has auctioned must-sell properties and high-end homes. "It generates a buzz."

The San Diego Union - Tribune - July 13, 2003
Homes sales exceed appraised values at county public auction

For the most part, they were real fixers that only an earnest real estate investor or a handy do-it-yourselfer could love. But each of the 17 homes sold last month at the county's public auction went for a price that exceeded its appraised value. That includes the modest La Jolla home with the million-dollar view -- or, to be more precise, $1.7 million, by the time the final bidder beat out the home's other suitors.

Unique Homes - December - January, 1998
The Auction Block

"More frequently, luxury-home owners who are tired of waiting the years it can take for upscale properties to sell are turning to auctions for a speedy resolution. 'Our phones are ringing off the hook,' says... [the] president of the National Auction Group... Many upper-end home owners are intrigued by the prospect of selling their homes quickly. 'Once you come into higher income levels, the real estate market becomes inefficient.'..."

Wall Street Journal - August 5, 1998
More Sellers of Property Try Auctions

"Across the Southeast, going to the gavel is becoming [a] popular option for even thriving businesses and wealthy landowners that want to get rid of property quickly." ...

"Among those increasingly turning to the auction block are burgeoning retailers that need to sell one store to make way for a new one nearby; consolidating banks with overlapping branches; and owners of valuable parcels looking to avoid taxes during protracted sale negotiations."

"Then there's the time advantage... all the buyers show up in one place at one time. And closing... typically takes less than 45 days, compared with several months in negotiated transactions." ...

"Taking into account the costs of holding property, it's not worth it to me if I can sell at auction and get retail or close to retail," says an entrepreneur."

The Washington Post - November 18, 1996
The Wealthy Bid Farewell to Realtors, Mansions Are Moving on the Auction Block

"In the kind of circles where time is money - lots of money - an auction provides a blisteringly fast way to bypass the tedious details of the regular real estate market... "'People like Duncan Smith don't worry about what he'll get for it,' said... [the] auction house handling the sale (of Toad Hall). 'He just [hasn't] got much time to fool with it.'"

"In eight months, Toad Hall had drawn only one serious inquiry. That's typical for the market of lavish high-priced houses, many real estate brokers said - and it's a reason more and more of them are ending up on the auction block..."

The Toad Hall auction had 10 registered bidders and in 15 minutes, the seller had $1.9 million.

Information & Programs/Incentives

Because we offer a unique service to sellers of real estate, our programs for licensed Brokers and Realtors should compliment your efforts. We are licensed and bonded in California and have extensive experience using the auction method of marketing real estate.

Below are answers to the most commonly asked questions from licensed real estate professionals:

1. Does the buyer need to have all cash on the day of the auction?

NO, the successful bidder pays typically 5-10% of the final accepted total contract price as a non-refundable deposit. The balance is required in 30-45 days (just like a normal real estate transaction). By requiring a larger upfront/non-refundable deposit our escrows usually close on schedule. This makes "payday" for our Realtor friends more predictable. Unlike a foreclosure auction where all cash is required on the day of the auction, our auctions mimic the standard closing time frame Realtors are accustomed to (i.e. 30-45 days).

2. If our clients/buyers require financing can an appraiser have access to the property after the auction during the escrow period?

YES, we can allow appraisers and other inspectors access throughout the escrow period. If the property requires termite work and the buyers want to have it done, the work can also be completed prior to closing.

3. Is the seller obligated to do repairs or any termite work?

NO, the properties sold at our auctions are sold "as is" with no contingencies. The buyer does however receive a copy of the termite report and a transfer disclosure statement filled out by the seller. Water heater bracing and smoke alarms are also required. A home warranty policy is normally given to the winning bidder.

4. Who pays the escrow and title costs?

Usually the buyer pays for title insurance (unlike a traditional escrow) and the escrow fees are split 50/50.

5. Are the sellers who sell their property by auction through our company, obligated to accept whatever the highest bid brings?

NO, only if the auction is absolute does the seller need to accept the highest bid. We also offer confirmation auctions that allow the seller to accept or reject the highest price the auction brings.

6. Can any inspections be made to the property prior to the auction?

YES, unlike foreclosure and tax sale auctions we hold usually one or two previews prior to the auction and one immediately prior on auction day. We recommend all potential buyers thoroughly inspect the properties. The properties can also be scrutinized by a home inspection company if the potential buyer wants to pay for this service. We also provide a recent termite inspection, and transfer disclosure statement in our bidder's packages. We truly want all potential buyers to be fully informed on the condition of the property.

Below are a few examples of properties and situations we might be able to assist you with:

1. Properties you have listed and the listing period is near expiration.
2. Properties where mortgage payments are behind and a foreclosure or tax sale is scheduled.
3. Properties that need a lot of fix up and/or have future liability concerns (i.e. faulty foundations, wiring, plumbing, etc.).
4. Hard to sell real estate like land, commercial, and industrial.
5. Expensive/luxury homes that usually sit on the market for months.
6. Probate properties.
7. Properties where the owner has been transferred or a divorce is involved.

Click Here to read an article from California Real Estate Magazine by way of Realtor.org

Note: If you have a client with a property or situation above that you feel would be suited for an auction, just call us. We'd be happy to meet with you and your client to discuss all the options. If we sell your client's property and the buyer closes, you would be paid a commission based on the final bid price. We hope this information is helpful and we can work with you in the future. Please call us @ (661) 325-6500 or e-mail us at EliteAuctions@yahoo.com to acquire more information about the auction process or to sign up a property for this time-tested procedure.

DRE #01499301 Bond #00104630778

Utilizing the auction method of marketing is now an alternative way to market and sell your properties in California. As real estate auctions become more popular there will be more companies that claim they are legitimate real estate auction firms. Here are a few questions that can be asked to determine whether or not the auction company is reputable...

Does your company exclusively sell real estate at auction or do you also use the list and sell method? Companies that claim to sell real estate at auction but are also list and sell agencies have a conflict of interest. The list and sell method is the exact opposite of the auction method and means that agencies that practice both do not have complete confidence that the auction method of marketing is the right choice for your real estate transaction. Your best choice would be a company that only specializes in the auction method of marketing real estate because they fully understand how auctions will benefit you and have complete confidence in their ability to sell your property at fair market value.

Does your company exclusively sell real estate at auction or do you also conduct auctions selling other types of product? There are many auctioneers that claim that they sell real estate at auction, when in actuality they also sell other products at auction and do real estate on the side. Your best choice would be to choose a company that exclusively sells real estate at auction because their focus is real property, not personal property.

Is your company bonded as auctioneers in the State of California? Auction companies that conduct business in the State of California are required by law to be bonded by the state. If the company you are interviewing is not bonded by the State of California do not trust your real estate to be sold legally by that company.

Is your company licensed by the Department of Real Estate (DRE) in California? Any auction company selling real estate in California must have a DRE licensed Broker overseeing every auction. If the company you are interviewing is not licensed by the California Department of Real Estate do not allow them to sell your property.

Is your company a member of the National Auctioneers Association (NAA) and the California State Auctioneers Association (CSAA)? It is not mandatory that real estate auctioneers be members of the NAA or CSAA, but all auctioneers that are members of both associations are required to follow a code of ethics while practicing as a legitimate auction company. Do not do business with auctioneers that aren't members of both associations because they may not be looking out for your best interests.

How many successful auctions has your company completed and how many years has your company been in the California real estate auction business? Choosing a real estate auction company that has not conducted more than 100 successful auctions and been in the real estate auction business for at least 5 years in California may not be in your best interests. In order for real estate auctions to have a positive outcome, they must be handled by auctioneers that have the proper knowledge and experience, which can only be gained by conducting a multitude of successful real estate auctions in California over a legitimate time period.

What type of marketing does your company utilize? If the auction company does not have a clearly defined marketing plan (i.e. signage, print advertising, internet, Realtor advertising, direct mail, etc.) for your property, then the best choice is to move on to an auction company that can give you a clear description of how they will market your property.

Does your company conduct real estate auctions exclusively in California? Real estate auction companies that conduct auctions in many different states will often times not understand the Calfornia market and can't give you a "hands on" approach, which may not lead to the successful sale of your property. The best choice is to utilize a local California real estate auction company to handle all facets of your sale.