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Highest Bid: Newlyweds offer $78,000 for house, land
Journal Photo by Jennifer Rotenizer
Tim and Betsy Bullard sit in front of the Yadkin County house they bought at auction. It's a fixer-upper but comes with 15 1/2 acres.
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Published: July 6, 2009
Buying her first home was a lump-in-the-throat, yet exhilarating experience for Betsy Bullard.
Bullard and her newlywed husband, Tim, were the high bidders -- at $78,000 -- for a three-bedroom, one-bathroom home in Yadkinville that comes with 15½ acres.
The Bullards, who were married in April and now live in Clemmons, won the decidedly fixer-upper house by about $500 at a foreclosure auction conducted by Hudson & Marshall of Texas Inc. last month in Winston-Salem.
"My heart was completely pounding in my chest when it got to $78,000," Betsy Bullard said. "We were willing to go as high as $80,000 because we knew we would be spending close to $40,000 on improvements if we got it."
At its core, capitalism is about economic winners and losers, with the foreclosure market perhaps the most painful and personal symbol of that reality.
There were 703 homes in the foreclosure pipeline in the Triad and Northwest North Carolina in May, including 229 in Forsyth County, according to RealtyTrac. Most foreclosures tend to involve a health crisis, lost job, divorce or financial mismanagement.
Foreclosure auctions, comprised mostly of bank-owned properties, represent a small piece of the local real-estate market, according to officials.
But more banks are turning to the strategy to clear foreclosed homes from their portfolio -- typically within 30 to 45 days -- for as many cents on the dollar as they can get.
Paul Neil III, the chief credit officer for Southern Community Financial Corp., said that the bank has used a foreclosure auction "in about 15 percent of all situations where we have had property to dispose of as a result of foreclosure."
"The decision to use an auction is driven by several factors that include the general market, the specific property and the desire to dispose of a piece of property within a certain time frame," he said.
BB&T Corp. has used foreclosure auctions on a limited basis, spokeswoman A.-C. McGraw said.
"But it's an option that most banks, including BB&T, are evaluating given the substantial problems in the real-estate market," McGraw said.
The auctions also are gaining more attention from homeowners and investors willing to take a risk on an "as is" home for potential savings of tens of thousands of dollars off the list price.
For example, the Yadkinville house had a value of $99,900 at www.listingbook.com, according to Sam Marshall, an auctioneer with Hudson & Marshall.
The Bullards are waiting to see if their offer is accepted by the lender. In a reverse auction, such as the one conducted by the Texas group, the seller has the right to reject the offer and begin new negotiations.
The Yadkinville home was one of eight properties auctioned by Hudson & Marshall. Offers on another 10 were accepted through pre-auction bidding on the Internet. The group also handled five properties in Winston-Salem, two in Lexington and one each in Banner Elk, Beech Mountain, Denton, Dobson, Harmony, High Point, Jonesville, Greensboro, Purlear and Reidsville.
There is a buyer-beware aspect to most foreclosure auctions. Because of the "as is" status, the repair costs of some homes can devour the savings from buying at auction, or even put novice investors into major debt themselves.
In the Bullards' example, they had a chance to view the Yadkinville house twice, including an open house last month.
"We wanted something within a 30-miles radius of Winston-Salem with lots of land," Tim Bullard said. "We liked the land with the house, though we know we have a chore on our hands with the roof."
"There would have been heartache to have lost it," Betsy Bullard said. "But we would have done it if it had gone much higher, and gone back to square one."
Experts said that foreclosed homes usually go through three phases in which the lender and buyers play a cat-and-mouse game over price. Each phase adds an impersonal, institutional layer.
The game starts with lenders wanting full market value. Realtors and investors said that the most attractive houses tend to be sold within 45 days of being foreclosed. After 45 days, most curiosity buyers back out of the market, leaving lenders and "hard-core foreclosure investors" locked in a battle of wills.
As homes are moved into the nonperforming-assets category, lenders begin dropping their price. Discounts of 20 percent or more typically take four to six months to appear.
There are mixed reports about how much some financial institutions are trying to help homeowners avoid foreclosure.
There's no question, however, that distressed properties -- defined as those under a foreclosure order or advertised for sale by the mortgage holder -- are becoming a bigger factor nationally.
The National Association of Realtors said on June 23 that "distressed properties" accounted for 33 percent of all existing-home sales in May, down from 45 percent in April. Foreclosed auctions account for about 1 percent of those sales, the association said.
Pete Rodda, the tax assessor for Forsyth County, said he doesn't believe the local market is "anywhere near that level" of distressed properties in existing-home sales. He estimated it could be closer to 15 percent.
But even using that lower percentage, that means that of the 433 existing homes sold in Forsyth County in May, 65 would have been considered as distressed.
Tony Plath, a finance professor at UNC Charlotte, said he expects "a glut of foreclosed properties to suddenly appear on the market" as soon as real-estate conditions start to improve.
"Banks tend to go to auction with foreclosures only when they're desperate to unload a piece of property they don't want to maintain, or they think they'll see an active bidding process," Plath said.
"But lately, the bids have been extremely disappointing. Otherwise, they're withholding foreclosed properties from the market until the bidding market improve."
Joe Jackson, an executive with Metrolina Capital Advisors LLC in Concord, said that demand for foreclosure auctions is increasing for commercial and residential properties because "the deadline of an auction brings fence-sitters off the sideline."
"We have had brokers refer a listing to us for help when they realize that their seller is getting ready to ‘hit the wall' and they find out that a foreclosure wipes out the listing agreement," Jackson said. "Oftentimes we can meet with the bank and demonstrate that an accelerated marketing solution has been agreed to, and the lender will take their foot off the gas on the foreclosure proceedings."
Jackson said his group provides a valuable service because "less marketing equals fewer bidders and results in less competition and generally lower outcomes on the assets value."
"It is really heartbreaking to see a seller lose not only their equity, but to still end up with a big deficiency and potential for a judgment against them," he said.
■ Richard Craver can be reached at 727-7376 or at rcraver@wsjournal.com.
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