Monday, April 27, 2009

My Experience with a House Auction in Birmingham

Today, I participated in a house auction in Vestavia, Alabama. We discovered the auction three days ago. We had the house inspected yesterday. From the time we viewed the house, we began due diligence for the auction.

We found a green ranch style house built in 1960 with good bones, but necessary repairs. It sat on a half-acre lot in an excellent neighborhood. Prior to auction, the house was listed for $139,000—cheap enough to assume financing, and payment. First, we decided whether we wanted the house. My wife had an emphatic “YES!” Actually, she designed the color patterns, and chose appliances from Craigslist. I was more apprehensive.

Next, we began due diligence, which consisted of three steps: an inspection, speaking with the mortgage underwriter, and financial analysis. The inspector told us to plan for a new air conditioning and heating service ($2,000 - $5,000) immediately, and a new roof ($5,000) within a year. The mortgage guy helped us minimize our initial capital outlay. Interestingly, a 5.75% interest rate was more desirable than a 4.75% requiring a MIPS payment of $3,000, an origination fee of $1,500, and a monthly PMI of $100. With the 5.75% mortgage and required payments at closing, and immediate repairs, we found a maximum on the house to be $112,000.

The house had a 5% “service fee” tacked onto the maximum mid. Therefore, our maximum bid was $107,000 (actually $106,667).

With our inspection, mortgage information, and financial analysis, I headed to the auction. I told our real estate agent to kick me if I bid above my maximum price. Five houses were auctioned off, and ours was last. Experience of seeing four auctions prior to “game time” soothed my nerves.

Once ours was announced, I listened keenly. The disclaimer was the same as the four previous, and bidding began similar to the others. Bids quickly ramped up from $10,000 to $40,000, $60,000, $80,000, $90,000. Then silence. Someone was holding the highest bid at $90,000, and the auctioneer asked for $95,000; he got it. Quickly someone else bid $100,000. Pace slowed, and everyone looked around for the next bidder. When he asked for $105,000, I flashed my card. $106,000; someone else. $107,000; I was quicker to bid this time. The pace slowed again. From $10,000 to $107,000, only 45 seconds passed. I remember my analysis—I was at my maximum.

Next a lady raised the bid to $108,000. I waited to give her thinking time. I waited to give me thinking time. I remember my analysis--$108,000 to $109,000 was marginal. The difference between the two was slim. I flashed my card. I had the high bid: $109,000.

Do I want this house? Are there costs associated with the house I don’t know about? Will this wipe-out my savings? Pausing, she bid $110,000. I don’t know how long I had the high bid—4 seconds, maybe. It felt like a minute, and everything became clear.

At $110,000, she and I were the last bidders. My decision prior to the auction determined it was too high for me. I feared buyer’s regret. At $107,000 I was certain. At $110,000, I feared a bidding war that left me standing, and owning uncertainty.

Pressure came, and everyone was looking at me. Auctioneer asked if I would go $111,000? How about $110,500? I shook my head, and the event was over. She won the house for $110,000 (plus a 5% “service fee,” or 115,500).

As I walked away, I tried to answer the question, “Would I have paid $110,000?” All I could think was, “absolutely.”

1 comment:

Andrew said...

Buyer's Remorse - what a she-devil she is.