Thoughts After the Las Vegas Foreclosure Auction

We attended the most recent Las Vegas foreclosure auction today, and it went pretty much as expected, except the prices being bid were even higher than we anticipated. For the majority of buyers, it was their first auction. I'm not sure exactly how many bidders there were, but our bid card was number 4273. And there were quite a few out of state license plates pulling into the valet parking area to attend, especially from California. I don't think most of the buyers realized that almost all of the Las Vegas homes and condos had recently been listed and at what low prices they were listed for.

Instead, these buyers must have relied on the auctioneer's estimate of value in the auction brochure, because the prices they were bidding up to were only slightly below the last asking price in the MLS. As an investor, I had predetermined what I was willing to bid on each property and my value margins were far exceeded, except for one property I picked up really early (number three in the brochure) before the frenzy to buy became too great. And I am still waiting to hear if the bank will even accept my bid. My guess is I am too far below their reserve price, but if by some strange chance I do get it for the price I bid, I will indeed be happy!

Otherwise I will go back and search the MLS listings for the steals that are already there. It is definitely a little more work, as there is no central list and you have to dig for the information, but it is certainly worth the effort. And I will actually be able to pick up properties at less than what they were going for at the auction. I am also going to keep an eye on the properties that were in the auction to see if they actually close or if they end up going back on the market. My guess is at least 50% of those "sales" will fall through and be listed lower on the next go round.

Foreclosure auctions - not what they are cracked up to be!

Like any other prospective buyer, I was elated at the deals being offered at some of the "auctions" being held on Las Vegas foreclosures the past couple of weeks. The starting bids were unbelievable - at those prices I could easily buy and flip properties in a heartbeat! I have been down to the courthouse steps many times, and I know how the process works there. But there I am up against other professionals that buy foreclosure properties for a living and you have to have cash the day of the sale for the full purchase price. Here they will actually allow financing and you have up to 21 days to close. This should be a breeze! Most of the bidders are first time home buyers or beginning investors.

Should I start with a small fixer upper in the southeast with over 1300 square feet with a minimum bid of $69,000? Or imagine, the minimum bid on a 2846 square foot home in Lake Las Vegas was only $299,000! Or I could perhaps go for the 4144 square foot home in Seven Hills, minimum bid only $359,000.

And I always wanted one of those gorgeous Las Vegas high rise condos in Turnbury Towers. One with 2809 square feet is going for a minimum bid of only $499,000 and I have seen them sell at over a million!

As a matter of fact there are over 300 absolute STEALS going on this next weekend during a two day auction of bank owned properties with prices ranging literally from the high $30,000 mark to about $600,000. Surely I can pick up at least one or two properties with my real estate savvy gleaned from more than 24 years of experience.

For two days I spend 12 hours at a stretch on my computer, feverishly running comparables for all 300+ properties, sorting the really good deals from the spectacular ones and establishing the maximum bid I will make on any one property. I even add in the 5% "buyer's fee" being charged by the auctioneers and adjust my final figures. After all, I am a professional and I won't get sucked up into a bidding war on any home or condo. This is strictly a business proposition for me.

I drive around and make sure the homes are in one piece and not backing up to a major arterial or gravel pit. I go to the bank and grab my cashier's checks. I think optimistically and get five checks figuring I might get really lucky and even pick up five properties. I have my auction book marked and ready to go. The auction is tomorrow and I have all the information I need to make intelligent choices.

So why am I not excited anymore?!! I have done all my homework thoroughly and I am much more experienced than 99% of the other buyers who will be bidding on the homes.

I am not excited because I found out there is a real "catch" to these low low prices. I found out by reading the "fine print" that even though I might have the winning bid on a property, that doesn't mean I will be able to buy it for that price. The banks have pre-established reserves on each home, and if that reserve has not been met by my bid, the bank doesn't have to sell it to me. After the auction, the banks will most likely counter offer the winning bids

In an "auction" conducted last August, 87 Las Vegas homes and condos were auctioned off. Only 38 closed escrow at an average of only 12% below market value. The rest went back on the market and actually ended up being listed lower - at about 21% below market value. And on top of that, the inexperienced buyers were charged the 5% buyer's premium. They probably could have waited three or four weeks and gotten the same homes for less money and had full agent representation.

"Bidder acknowledges that seller and auctioneer and their employees, agents, affiliates and associates reserve the right to place bids on properties up to the seller's reserve price, if desired, at their sole discretion." This is the other little glitch in the fine print. The auctioneers and banks actually have the right to bid against you during the auction process to drive up prices.

Last weekend there was an auction in Lake Las Vegas on another 200 homes and condos. Auctioneers quickly whipped the crowds up into a bidding frenzy. (They are even more effective with huge crowds where the enthusiasm is contagious.) Likely there will be a higher percentage accepted by the banks from that auction as more properties probably hit their reserve prices. But the buyers weren't the ones getting the deals.

These are not auctions - they are just glorified bidding wars and the real winner is the auction houses and the banks, not the unsuspecting buyers.

Am I going to go to this weekend's auctions? Yes, I am absolutely. I am going to see the bidding war in action and to hand out business cards to those who quickly become disillusioned with the process. Maybe they will perk up when I tell them to wait, that most of these properties will be on the market again in a few weeks. And that I can get them a better deal than they can get bidding against 2000 other buyers AND the banks themselves! Las Vegas real estate can be a tricky game, but there ARE ways to profit, in any market.

Las Vegas New Homes

Cancellations on Las Vegas new homes are rising around the Valley. Home Builders Research released statistics showing that the cancellation rate on purchases of new homes in the Valley jumped to 53 percent in August.

The rate had been closer to 30 percent two months ago before lenders starting tightening credit. Lenders are requiring higher credit scores, and those who don't have good credit are required to put down a greater down payment or pay higher interest rates. Even people with good credit are finding it harder to get jumbo loans of $417,000 and above. Those who can't document their income are also having difficulty getting loans.

"Buyers are certainly not canceling because they are changing their minds," said Dennis Smith, president of Home Builders Research. "They are canceling because something has changed in their monthly payments."

The good news for patient buyers who were waiting for the Las Vegas homes market to bottom out is that builders have drastically lowered their prices and are offering incredible incentives in order to move inventory. And a few top real estate agents are negotiating even better deals for their buyers than the tracts are initially offering based on the volume of buyers they are able to bring to the tract.

Smith reports Meritage Homes lowered prices in some of their subdivisions by $50,000. And Rhodes Homes is selling homes for $125 to $130 per square foot, way below 2005 levels.
But despite current soft market conditions, Las Vegas is continuing to grow at a rapid pace, and reports say recovery is likely to come faster here than in any other city in the country. A large shortage in labor and a retiring baby boomer generation spell a large population increase in the imminent future which should effectively eliminate the housing surplus and return the market to balanced buying and selling conditions. In order to take advantage of the existing builder discounts, contact our office at 702-985-7654 and ask to speak to one of our new homes specialists.