108 Degrees In The Shade
The year was 2011. It was a hot summer day in August and it was around 108 degrees Fahrenheit or 42 degrees centigrade in the shade in Phoenix. There were about 50 people assembled on the patio next to court house steps on Jefferson street. They were all there for the same reason. Most people had a clipboard with the the list of the days properties to be auctioned.
In a few minutes time, the auctioneers would arrive with their ruggedized laptops. Today there were three auctioneers and each one set up on a separate picnic table, separated by about 15 feet. If you stood between two of the tables you would probably be able to hear two sets of auction properties at once.
You could tell who were the professional bidders. They had an ear piece connected to their phone in one ear so they could communicate with the head office and they were listening to the auctioneers with the other ear.
This day’s list had 260 properties to be auctioned. The list was made public at 9AM the day before the auction. So you had at most 27 hours to review the list and perform a drive by inspection of the properties on the list.
But before you did that, you would need to carefully review the list and determine which properties would be of interest. You would need to search title to determine whether any other liens were recorded on title. Knowing the full picture of the liens on title was key to knowing what the likely minimum sale price would be at the auction. If the price didn’t meet the reserve price and didn’t sell, then the lender would become the owner as a result of the auction.
If you looked around you could tell who were the professional bidders and who were the amateurs. The pros all knew each other. The rookies were looking around, taking it all in. They were unsure where to stand, unsure of how it all worked.
There was a police officer from Toronto. There was a mother and daughter who arrived with one specific property in mind.
Each time a property sold, the winning bidder confirmed their information with the auctioneer and handed over a cashiers check for $10,000. They would have 24 hours to bring the balance of the purchase in the form of a cashiers check. The auctioneer would read out the lot number from the list of auctioned properties and then read out the address and the starting bid. Within a minute the property would have a new owner or it would revert to the foreclosing lender if there were no bids.
Many of the properties sold for $25,000 to $35,000.
The professional bidders wanting to protect their value in the process would bid against rookie buyers to force the price up before backing down. They forced the purchase price up to $50,000 when the mother and daughter
Many of those in attendance were shocked that the mother and daughter were forced to pay too much. On that day about 1/3 of the properties went back to the bank with no bid. Another quarter that were originally on the published list did not get auctioned. It was an average day on the courthouse steps in the noon sun. That year, 36,000 homes went into foreclosure.
Mother and daughter overpaid by about $20,000 that day. But today, their home would probably sell for between $400,000-$450,000. With the benefit of hindsight, we can see that there were no bad deals that day.
Back then we were looking upon the auctions as the new normal.
Here we are in 2021, in the tail end of the largest pandemic induced economic disruption in recent economic history. Homes are selling above asking price in multiple offers. The current market conditions have no end in sight. This is the new normal. Back in 2019 the market appeared hot. Here we are nearly two years later and the market seems hotter than ever.
As I reflect upon the auctions of 2007, those were not normal market conditions. The frenzied market conditions of 2021 are not normal either.