This section is perhaps the most crucial element of the determinants of a successful auction. It is the area most novices to the auction profession have the greatest difficulty with (ie brokers who are trying the auction model because their model hasn’t been working to well recently).
We receive calls every day from would-be sellers who refinanced their asset at the peak of the market, whose lenders were willing to rely on hyper-inflated appraisals and to often lend amounts far in excess of the asset’s value, so that the owners could take the extra cash out of the refinance and use it for other purposes.
They tell us they have an appraisal which “proves” the asset is worth far more than they can expect to receive for it, and that in any case they now owe far more than it is worth.
Many brokers and other novices to our profession have been to auctions and seen how the price got bid up, and expect that an auction can do the same for them. In other words, they believe that the auctioneer’s gavel is like a magic wand!
In this age of easily obtainable information, bidders can often access mortgage records and sales data and quickly determine if an asset is “underwater”, and because it is well known that the majority of mortgage balances exceed the values of the assets, most private sellers are not good auction candidates.
Until the major correction of the real estate market which manifest itself most strongly beginning in 2008, financial institutions were credible sellers. However, the severity of the downturn has created a situation where even they are often unable to sell for current prices in most markets.
Lenders with sufficient reserves are able to “write down” assets over a period of time as they market them. Given sufficient time, the lenders can sell the assets once the written down book value meets the market. Since 2008, the rate at which most lenders have been able to write down their assets has not been able to keep pace with the downward drop in the market. Thus, in many cases, their inventory of assets has continued to grow, as foreclosures have hit record levels in the same time period.
Also, since many lenders rely on appraisals to justify accepting prices in the current market, they have been hamstrung by the fact that the same appraisers who were telling them the values were unrealistically high back at the peak of the bubble are now slowly beginning to accept the current market conditions. Many appraisers are still attempting to use comparables that are “bubble” comparables from years back, and do not have the methodology to value assets in the present market. This “backwards” approach to valuation may have the benefit of justifying their poor valuations at the peak of the market, but are of little help in the current market.
As auctioneers with a long history of selling assets for cash, we know the cash values of real estate better than the brokers and appraisers who have been contributing to the financial bubble. If a seller is unable to sell for the current market price, it is our duty to inform them of that, prior to engaging our marketing services. We do not believe it reflects well upon the seller or auctioneer to undergo an extensive auction marketing campaign unless they are in a position to sell the asset for the current market price.
You can trust us to get it right!
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