Get ready for a US-style repossession revolution on the streets of Britain. A controversial American property auction company that specialises in selling off repossessed homes at rock-bottom prices is preparing to open for business here, in what some will see as a bid to cash in on the UK’s credit crunch, Guardian Money can reveal.
Real Estate Disposition Corporation claims to be America’s largest real estate auction company, and is well-known in the US for holding blockbuster “foreclosure auctions” where, amid much razzmatazz, hundreds of homebuyers and investors compete to buy repossessed properties at prices often far below their most recent valuations.
Now Britain is set to get a taste of its “pile ’em high, sell ’em cheap” sales tactics. Plans are already in the pipeline for the company’s first UK auction at which hundreds of repossessed homes will go under the hammer.
In the US last year, banks began repossession proceedings on 2.25m homes, and in many towns and cities, REDC’s distinctive black and yellow signs reading “lender foreclosure – public home auction” have become an increasingly common sight in front yards.
Guardian Money has seen documents showing that REDC plans to put up almost identical signs in the UK which will clearly identify properties that have been repossessed and are to be auctioned off. Fears have already been expressed in some quarters that signs indicating bank repossession could affect the value of neighbouring properties and even destabilise local housing markets. In the UK, for-sale boards for homes that are to be auctioned off after being seized by banks do not usually carry the “R” word.
The documents reveal that REDC is planning to hold giant auctions at hotels and conference centres which will be promoted with TV, radio and print adverts. There will be a website, auctiontoday.co.uk, and a freephone number which people will be able to call for a free brochure. Guardian Money has seen a draft UK TV advert for REDC.
Against a backdrop of bustling auction rooms, the voiceover begins: “Attention homebuyers! You don’t have to be a major investor to buy bank repossessed homes at auction. REDC … is holding its first ever UK property auction beginning on 28 March. Over 500 homes must be sold at this huge five-day auction of bank repossessions. Bidding starts as low as £1,000 … Don’t miss this amazing opportunity to buy a home or a property to let at auction prices.” (It is not clear whether there is an auction taking place on that date.)
One property market source claimed REDC had approached major UK mortgage lenders about putting their properties into its auctions. “They are going to be flooding the marketplace with really cheap property. It will devalue every other property in the street. It’s the US cashing in our mortgage misery.” News of the company’s plans comes days after figures confirmed that 40,000 UK families and individuals had their properties seized by lenders last year. Forecasts from home-loan firms predict at least 75,000 repossessions in 2009.
Selling off repossessed properties at auction is, of course, not a new phenomenon in the UK. But if REDC’s UK auctions are anything like the ones it holds in the US, some of those who go along could be in for a shock. In the US, an REDC auction is an experience akin to a glitzy evangelical church service.
Earlier this month, a reporter from the San Francisco Chronicle joined almost 1,600 bargain-hunters at one of the company’s auctions. “People of all ages showed up in San Jose, pumped up by rock music that blared through the loudspeakers at the convention center – the [80s James Brown] song Living in America means an auction is about to start – and the tantalizing possibility of getting a deal,” she wrote. “As the auctioneer rattled off prices, men dressed in black tuxedos roamed the crowd. Known as ‘ring men’, they pantomimed their excitement at a new bid, and as the high bid jumped from one area to another, a ring man blew his whistle. Homes sold briskly, one after another.”
The reporter told how some people clearly came away with bargains; for example, a secretary picked up a townhouse valued at $412,000 for $167,500. But she recounted how buyers sometimes “get caught up in the excitement and bid on the wrong property”.
A reporter from the Orange County Register newspaper who attended an auction in Anaheim, California, a year ago described how free coffee was available, and how he saw “workers pass bowls of candy to people sitting in the front rows. I imagine the coffee and sugar helped to keep people excited about bidding. Young women at the front of the hall clapped rhythmically as the bids rose, seemingly acting like cheerleaders.”
However, he added: “All in all, I thought the auction was run quite professionally … it seemed to me the auction rules were pretty well disclosed to potential bidders.”
In the US, would-be bidders are told to turn up with a cash cheque for $5,000 and enough money to pay 5% of the purchase price. It is not clear what the requirements will be in the UK, though the TV ad claims that buying a property will be “as easy as one, two, three” – first, log on to the site to find homes you are interested in and attend a “scheduled viewing day”, then register for the auction and, if you wish, “pre-qualify for a range of competitive mortgages”, and come along to the auction and “bid to win!”
California-based REDC says on its website that it has helped 10s of thousands of US families and individuals buy homes, often at “astoundingly attractive prices”. Last year alone, it auctioned well over 20,000 foreclosed properties.
“While it’s troubling that people have lost their homes through foreclosure, others are realising their dream of owning a home through the auction process,” REDC chief executive Jeffrey Frieden said in December. He added: “This is the bright side of today’s real estate market. Our company turns these houses back into homes.” However, a search of the web shows there have been plenty of complaints on US web forums and blogs about the company’s approach.
Some are unhappy about how the firm’s US auction terms and conditions appear to indicate that all properties have a reserve price (minimum selling price) which is not disclosed, and in order to become the winning bidder, an individual’s bid must meet or exceed this price, and their bid has to be accepted by the seller.
Furthermore, under the rules, the auctioneer can bid the price up to the reserve price. If the bids don’t reach the reserve price, the seller is under no obligation to sell the property. Also, sellers don’t have to accept the winning bid on the spot; they are allowed to take up to 15 days to approve or decline the offer.
There has been speculation about how much commission REDC will charge for selling a home. In Britain, most auctioneers charge commission of up to 2% of the sale price, according to Allsop, which describes itself as the UK’s leading residential auctioneer.
We rang and emailed REDC’s public relations representative, who told us he had sent an email “to the person who is putting all the details together for the UK auction”, and was waiting to hear back. No other comments were forthcoming as we went to press.