More than 300 foreclosed Minnesota homes will be auctioned to the public Saturday at the Minneapolis Convention Center, the latest in a growing number of distressed real estate sales around the nation where houses go for around half of their estimated "previous value."
It's the fourth Minnesota auction for Real Estate Disposition Corp. (REDC) of California, which sells homes repossessed by banks within the last year in what it calls "as-is" condition. Most homes have starting bids of a few thousand dollars, although a few start at more than $100,000. Winning bidders have to put down cash deposits equal to 5 percent of the purchase price.
To get into the auction, a consumer must bring a $5,000 cashier's check made out to himself or herself. A winning bidder will be asked to sign the cashier's check over the REDC as part of the 5 percent down payment, said spokesman Rick Weinberg.
Success for REDC is based on getting as much of home's "previous value" as possible, typically 50 to 60 percent, Weinberg said. However, he agreed that the accuracy of the previous value is open to question because it's based on an appraisal rather than a previous sale price. At an auction, about 85 percent of the available homes typically are sold, he said.
However, buying a foreclosed home can be risky, said real estate consultant Jim McComb, president of McComb Group in St. Paul.
"You don't know what's hidden in the structure, or what kind of abuse it has suffered," McComb said. "The copper pipe has been stripped out of some, and others have been frozen. There's a lot of real damaged real estate out there."
But banks have to get rid of foreclosed houses, "and an auction will do that," he said.
Buyers had a chance earlier this month to inspect houses up for auction, but the window for those inspections has passed, Weinberg said.
REDC won't name any of the banks on behalf of which it is auctioning homes. At the high end is a St. Paul home previously appraised at $862,000. It has 8 bedrooms, 3,372 square feet and a starting bid of $149,000. More typical is a 1,490-square-foot Minneapolis house with a previous value of $142,000 and a starting bid of $500. Most of the homes are in the Twin Cities area, but others are in outstate Minnesota. To view the complete list of foreclosed homes for sale, see www.auction.com/auction-details.php?auctionID=H-070.
REDC, which recently bought the "auction.com" website domain name for $1.7 million, has held similar auctions in Denver, Chicago, Kansas City and other metropolitan areas. The firm's previous auction in the Twin Cities area was in June. Banks seek auction firms such as REDC "because auctions are not their business," Weinberg said. "They don't know anything about to how to maximize sales at a big ballroom-style auction."
Foreclosure auctions are a blessing and a curse for the Twin Cities-area housing market, the Minneapolis Area Association of Realtors reported earlier this month. They raise the number of sales but depress the median sale price.
But McComb doubts that discounted sales of foreclosed homes really hurt the price for traditional home sales, because the customer for each is different.
What's more important is that auctions play an important role in helping the housing market recover, because they remove from the housing market some of an estimated 49,000 Twin Cities homes that have been foreclosed since 2005, McComb said.
While each auction helps reduce the financial pressure on lenders, it will take awhile longer to work down the backlog of foreclosed Twin Cities-area homes, he said. He estimates that 65 to 75 percent of the foreclosed homes in the metropolitan area remain unsold and that the long cycle of processing foreclosures means that homes foreclosed in 2007 and 2008 are just entering the housing market.
"The housing auction business has been absolutely booming," REDC's Weinberg said. "We auctioned 32,799 homes last year for a total of $3.4 billion, and we're going at a pace to break last year's record."
Steve Alexander • 612-673-4553
