House up, but no bidders qualify

Upscale Chapel Hill home on auction block in a slow real estate market

CHAPEL HILL -- The auctioneer was warmed up and ready with a microphone. The spectators watched eagerly. The house was open, spotless and decorated.

The only things missing Thursday were the bidders.

Despite publicity, no qualified bidders showed up to bid on the four-bedroom home at 740 E. Franklin St., with a tax value of $466,472. Qualification meant a $25,000 cashier's check for a deposit.

About 25 people, mostly real estate brokers and spectators, gathered about 3 p.m. to watch the process.

The house has been on the market for more than a year, the sale motivated by a divorce. The broker then turned to AuctionFirst, a home auction company with offices in Raleigh.

"The stereotype people have is that [auctions are] for distressed properties" and foreclosures, said Sarah Sonke, AuctionFirst co-founder.

But the company doesn't handle foreclosures. And Sonke is selective in the properties she agrees to handle, working with about one in 30 people who call her office.

Sonke says the Triangle market for home sellers isn't as robust as people think.

"What's happening is the resell homes are sitting out there, and [sellers] are really not getting desperate, but they're getting concerned that no one is coming for a showing," she said. "The resell homes are really suffering."

Unlike in a traditional home sale, the seller whose home is auctioned doesn't pay any commissions. It's the winning bidder who pays a premium. An additional fee -- 10 percent in the case of the Franklin Street house -- is added to the final bid price. That pays brokers' fees and AuctionFirst's costs.

Nationwide, auction and real estate industry groups are seeing a rise in home auctions, both in foreclosures and in homeowner sales.

The residential real estate auction business grew 39 percent between 2003 and 2006, according to surveys commissioned by the National Auctioneers Association.

Revenue from residential real estate auctions climbed from $11.5 billion to $16 billion over that period, making it the fastest-growing segment of the live auctions industry, the association said.

While the NAA doesn't track foreclosure auctions versus other sales, the group is seeing more foreclosures, spokesman Chris Longly said.

"The auction is just another method of selling," said Ben Anderson, a Destin, Fla., real estate broker and auctioneer. "It still brings together sellers and buyers, each working on their own best interest, and it produces a fair market value."

The advantage of auctions, Anderson said, is that sellers have greater control over the time and conditions of the sale. The trade-off is they may take a lower price, though they can set a reserve -- a price below which they won't sell.

Another potential downside is losing an up-front marketing fee if the house doesn't sell.

Auctioning a home can be useful in speculative markets where determining market value is difficult, said Don Stanford, a Chapel Hill lawyer who teaches business law at UNC-Chapel Hill's Kenan-Flagler Business School. He added he doesn't expect to see many similar home auctions in the Triangle. "You're dealing with a situation where people just aren't happy with the price they're being offered, so what they do is try to jump-start it."

With no qualified bidders Thursday, the next step is a sealed bid period for a week. A buyer from Hong Kong is interested, Sonke said, and she planned to contact others who have expressed interest.

Thursday's result didn't dishearten Laura Brockington of Chapel Hill. She, too, is planning to auction her home through AuctionFirst in August. After many showings and no offers -- "not even a bad offer" -- she's ready for a new strategy.

"I need to be out of that house."