THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Saturday, August 13, 1994 TAG: 9408120475
SECTION: REAL ESTATE WEEKLY PAGE: 04 EDITION: FINAL
TYPE: Cover Story
SOURCE: By Kathleen Butler
Special to Real Estate Weekly
LENGTH: Long : 192 lines
After listing their Portsmouth home with a real estate company for three months, Stewart and Maryann Fleming got only a few nibbles from potential buyers.
So the couple decided to sell their five-bedroom home using a different technique.
Next weekend, the Flemings will hold a two-day open house, followed by auction-style bidding and - they hope - the sale of their house.
What's more, Stewart Fleming's brother and sister-in-law, Marshall and Kathy Fleming, will try to sell their four-bedroom home in Portsmouth the same way next weekend.
``Both of us had tried Relators and had not had as much activity as we had hoped for,'' Stewart Fleming says.
His brother agrees.
``By doing it this way, we take a pro-active position,'' Marshall Fleming says. ``There's a starting and an end point.''
Both couples are part of a growing number of Hampton Roads homeowners who are considering auctions to get their houses sold.
``We have seen a sharp increase in the number of inquiries from homeowners who are having difficulty selling their home,'' says Steven I. Fox, president of Fox and Associates, a Virginia Beach-based auction company. ``Every month, the amount of calls we get continues to grow.''
Part of the reason, Fox says, is that homeowners are growing more aware of auctions as a sales tool.
Government agencies, such as the Department of Veterans Affairs, often use auctions to sell property. Even private developers sometimes turn to auctions to sell the last few homes in a community.
An auction might be a good move for someone who needs - or wants - to sell a home quickly, local auctioneers say. Often, owners who sell at auction have had their home on the market for several months with no acceptable offers.
``It's usually someone who's had it on the market a long time and can't sell the house, so the next thing is the auction method,'' says Calvin Zedd of Zedd Auctioneers Ltd. in Norfolk.
Real estate agents don't see auctions as competition in Hampton Roads, says Linda Drelick, president of the Portsmouth-Chesapeake Association of Realtors.
``We don't have that many in this area,'' Drelick says. ``We're more or less a VA and FHA market.''
Darleen Lamb, president of the Tidewater Association of Realtors, says she has not heard of local agents losing business to sellers who auction their home.
``We don't really view it as competition or a threat - or something we're not in favor of, because we're in favor of what's in the best interest of the seller or the consumer,'' Lamb says.
If sellers choose to auction their home, Lamb says, they should consider what type of auction to use - absolute or reserve. Each has its potential pitfalls.
In an absolute auction, the house goes to the highest bidder, she says. This may result in a winning bid that is less than what the seller wants.
In a reserve auction, the seller reserves the right to refuse bids. Such a strategy, Lamb says, may not result in a sale.
Sellers who decide to auction their homes often employ the services of an auctioneer. But both Fleming couples are handling the arrangements with the help of only a lawyer.
The couples will advertise their homes next week, mainly in newspapers, and will hold open houses next Saturday and Sunday.
During the open houses, potential buyers can leave an initial bid with the owners. For Stewart and Maryann Fleming, the minimum bid is $165,000; for Marshall and Kathy Fleming, the minimum bid is $120,000.
On Sunday evening, the couples will each review the bids and place them in order of ``best offer.'' The order, they say, is not necessarily based on price.
``Someone who can close quickly may be better than someone who is willing to pay more, contingent upon selling their home,'' Kathy Fleming says.
Then, the couples will call all the bidders, let them know what the other bids are and offer them the chance to increase their bid in increments of $500. The telephone ``round robin'' bidding will continue until one offer remains.
Bidders with the second- and third-best offers will be given the chance to buy the house if the first buyer fails to close the sale.
The couples' strategy differs from traditional auctions, where buyers gather at a home and bid for it at the same time.
Though the Flemings say the minimum bids for both homes are ``significantly below'' their appraised values, the couples are not concerned about losing money.
``We both believe the market will bring the price it should bring,'' Marshall Fleming says. ``What's better: putting it up for sale at $150,000 and waiting months for it to not sell, or selling for $135,000 and having it done?''
The biggest advantage of an auction is that it's over fast, says Jack Peoples of Jack Peoples Auctioneer in Chesapeake. ``It's kind of a one-day, no haggling affair,'' he says. ``It's not a paper chase.''
Not only is the auction over in a day, the preparation and settlement are also fast. Often, an auction can be scheduled within one month to 45 days of signing on with an auctioneer. Final payment from the buyer can come as soon as 15 days after the auction, depending on the terms of the sale.
On average, homes sold at auction bring in about 85 or 90 percent of the last listing price, Fox says. And often, he says, that is the fair market price.
Recently, Fox sold a 7,200-square-foot home for a woman in North Carolina. She had the house on the market for $500,000 for five years and had never gotten an offer above $335,000. About 120 people attended the auction, and the house sold for $435,000, Fox says.
``With 120 people at an auction, you're going to get market value.''
Though some auctions have sealed bids, local auctioneers say most private residential auctions are public - which means folks raise their hands to indicate bids, and the house is sold when the last hand remains. The complete auction takes about 15 minutes.
Still, auctions are not for everyone, Fox says. Typically, sellers must pay to advertise the auction and their home up-front, which can cost from $200 to $20,000. That means sellers must have funds available before they sell the home.
Also, there's no guarantee the auction will bring in the price the seller wants.
But for couples like the Flemings, the speed of an auction-style sale outweighs the risk. Their approach, they say, will at least raise interest among potential buyers.
``When somebody sees something a little different,'' Stewart Fleming says, ``hopefully it will draw them in.'' MEMO: AUCTION TIPS
Real estate auctions have their pros and cons for both buyers and
sellers. Here are some pointers from auction experts:
For the buyer
Inspect the house before the auction. Most homes are sold ``as is,
where is,'' meaning the seller won't haggle over last-minute inspections
or make repairs as a condition of the sale.
``We have an old saying,'' says Jack Peoples of Jack Peoples
Auctioneer in Chesapeake. ``Take it like you took your wife or husband -
for better or for worse.''
A mortgage company, for instance, may require a termite inspection
before approving the loan. In a conventional real estate deal, the
responsibility for the inspection often falls on the seller; at an
auction, the buyer is responsible. Still, some sellers may have already
had their homes inspected. Ask them.
Have your finances lined up before the auction. Most auctioneers
require a hefty deposit on the day of the bidding. On average, it's
about $5,000, but it can be as high as $50,000 or more depending on the
property value. If a problem arises during the closing and the sale
cannot go through, the buyer forfeits the deposit.
Have cash or a cashier's check available on the day of the auction.
Some auctioneers will take a personal check, but most say they will not.
Sometimes, homes can be sold before the auction if the price is
right, says Steven I. Fox, president of Fox and Associates in Virginia
Beach. If you have your heart set on a house up for bids, call the
auction company beforehand to see if the seller is willing to negotiate.
Also, homes may still be available after the auction. Sometimes, no
one will bid high enough or the seller will reject the bids. In other
cases, the highest bidder may default at the closing. If you're
interested in a house, don't be afraid to call the auctioneer after the
bidding.
If you are serious about buying a house at auction, go to every one
that interests you. You may not be the highest bidder at your first
auction, Fox says, but the right house and the right time will come
along.
For the sellers
Sellers are usually responsible for the advertising costs of an
auction, which can range from $200 to $20,000. Usually, this is an
up-front expense.
The auctioneer's commission is typically a bit lower than a real
estate agent's commission. Also, the auction seller typically pays fewer
closing costs, usually less than $500, Fox says.
But depending on how much advertising is done, the total cost of
auctioning a house can be the same as going through a real estate agent.
One of the biggest reasons for a home not selling at an auction is
uninformed buyers, Fox says. In addition to straight advertising,
sellers should send detailed information packets to potential bidders.
- Kathleen Butler
ILLUSTRATION: [Cover]
UP FOR BIDS
[Color Photo by] TODD SPENCER
Maryann and Stewart Fleming of Portsmouth plan to auction their
3,700-square-foot five-bedroom home in Churchland next weekend.
Their minimum bid: $165,000.
Next weekend, Maryann and Stewart Fleming will accept bids on their
five-bedroom home, at 5104 Lake Circle in Portsmouth. The minimum
bid, $165,000, is much lower than the house's appraised value, the
Flemings say, but they hope the winning bid will be higher.
Jack Peoples
by CNB