Watching a Price Correction, in Real-Time
On a crisp, blustery Sunday afternoon just days before Christmas, crowds of people filed in through the large, heavy doors and proceeded to tables set up with coffee and cans of soft drinks on ice. With refreshments in hand, the attendees picked up various tracts before entering the large ballroom. The front of the room sported two over-sized projector screens with messages of welcome on either side of a solid wood podium. The crowd filled the nearly 200 chairs, shrugging off overcoats to reveal flannel shirts and woolen sweaters, while a man at a keyboard played jazzy renditions of holiday classics. The scene was deceptively reminiscent of a holiday music concert or a church-based Christmas function. If it weren't for the daily newspapers and classifieds sections, the reams of blank paperwork, auction brochures and numbered paddles shuffled in the laps of the attendees, the illusion might have been complete. But the crowd that gathered in the ballroom-style meeting hall of the Dallas/Fort Worth Airport Marriott North had not assembled for as spectators. There was work to be done at the Hudson & Marshall of Texas Inc.-hosted gathering. The Dallas-based auctioneer, one of four or five well-known names in the REO auction space, was in it to sell off the remaining 37 Dallas-area bank-owned foreclosed homes it had on the block. Bret Richards, a certified auctioneer with Hudson & Marshall, wearing a striped tie and bearing a thick Southern accent, flipped through a booklet of bank-owned homes that he explained had either been auctioned or were to be auctioned throughout Texas. The book's dog-eared pages were littered with big Xs inked in black over the images of homes already pre-sold or removed from the auction. All the homes had already been through the foreclosure process and were appearing in the auction to, as Richards put it, "get back in the hands of the public." "Through the competitive bidding process, the homes are going to come to true market value -- what that property is actually worth in the market place," Richards says in an interview moments before the auction begins. "Today, we'll find out what these properties are worth to the Dallas/Fort Worth market." The auction brought together a room of investors and potential home buyers, real estate agents and sellers of the bank-owned properties, young families and older, graying couples. Together, these parties would take part in a series of bidding wars to see who would go home to a property for much less than -- often around half of -- the estimated, appraised market value. "It's a market correction," Richards says. Hudson & Marshall had successfully sold more than 90 percent of the properties listed by the end of the long week of Texas auctions. By the time the Dallas-area auction rolled around -- the final auction of the week and of the year -- 57 of the 101 Texas properties had been pre-sold before auction. In the Dallas area alone, Hudson & Marshall began with 85 listed properties but pre-sold more than half of these to bring only 37 remaining homes to the Dallas auction, according to Richards. Not only does the auction aim to correct market prices, it also stimulates local markets by bringing buyers and sellers together for future prospects. In a room filled with more than 200 people and only 37 properties to sell, there was bound to be a large number of disappointed bidders walking away empty-handed. But with the name of a real estate agent encountered before the auction, Richards says hopeful home buyers will have the proper local connections to buy in the future. Let the bidding begin Moments later, Richards introduced the day's auctioneer, a large man with a booming and musical voice that commanded the floor from the first property to appear on the large projector screens to either side of the podium. His strange, unintelligible, oddly lyrical ballad of bids, counter-bids and final sales was interrupted only by light, jazzy interludes from a nearby keyboardist used to introduce the next property and momentarily relieve the thick tension of the bidding war. Out of the gibberish emitted at a piercing decibel from the large speakers, untrained ears could just barely pick up on short, articulated phrases of "forty-eight thousand" and "forty-nine thousand," and lyrics like, "You never know what a little bid will do." This sort of weird, staccato rap was punctuated by shouts and signals from auction workers posted at intervals in the aisles, motioning with quick hand signs for each new bid. The process unfolded with the first few homes selling within 90 seconds each, ranging from $41,000 to $60,000. Among the bidders was Mike Darnell, a Dallas resident and manager of a debt collection company, who attended the auction in hopes of purchasing a Dallas home, a 3,818-square-foot multi-family property. He planned to live in one half of the home and rent out the vacant half. Before the auction even began, he knew he was willing to go as high as $206,000. "The seller isn't here today," he says just before the auction. "We won't know probably until January" whether the seller will accept the bid, he said before the auction. Caught up in a bidding war, Darnell was outbid at the last second by a mere $2,000. The home, with six bedrooms and four baths, is listed on property information site Zillow.com at an estimated $415,500. The last sale on record with Zillow occurred in May 2008, when the home sold for $266,250. Unfortunately for Darnell -- but perhaps fortunately for markets struggling to correct -- the coveted property left the auction floor Dec. 21 with a winning bid of $208,000. That's just half of Zillow.com's estimated market value. A half-price auction tag might be a severe discount -- especially in the Dallas market, which reported an annual 3.0 percent home value decline, according to the October data released Tuesday by Standard & Poor's -- but it almost ensures a market correction drastic enough to find some sort of bottom sooner, rather than later. Write to Diana Golobay at firstname.lastname@example.org.