• Bank repossessions increased 58 percent between May 2014 and May 2015, and foreclosure auctions increased 4.9 percent year over year.
  • Auctions are typically utilized only at the extremes of the market: distressed properties and ultraluxury homes.
  • The three types of auctions and how they can help agents build their business. 

Although foreclosure activity has declined since the housing crisis, the number of real estate owned (REO) properties has recently begun to increase.

According to RealtyTrac, these bank repossessions increased 58 percent from May 2014 to this past May, and foreclosure auctions increased 4.9 percent year over year.

As the market continues its cleanup phase, foreclosures, REOs and auctions will remain a part of the homebuying and selling process.

With these properties continuing to make up a significant part of the market, real estate agents should learn more about these transactions, particularly auctions.

Many in the real estate business are wary of auctions and tend to shy away from including them in their business. Auctions are typically utilized only at the extremes of the market: distressed properties and ultraluxury homes.

Because the ultraluxury niche is small and most real estate agents don’t work within it, focusing on distressed property auctions is most prudent for those interested in adding these transactions to their business.

For residential properties, there are three main types of property auctions, and here’s how they might benefit your business:

1. Foreclosure auctions

These sales typically do not involve real estate agents at either end. Conducted on the steps of the local courthouse, a convention center or even at the foreclosed property itself, these properties are sold by an auctioneer, a trustee or a sheriff via a live auction.

There’s no listing agent, and the majority of buyers are not represented by agents, either. Typically, these properties attract investors, rather than buyers looking for a home of their own.

Although the transactions themselves likely won’t provide business, these auctions do offer excellent networking opportunities for agents.

By attending auctions and getting to know the buyers, agents can position themselves to earn future listings. After all, once investors have fixed up the property, they likely will sell via conventional methods.

2. Occupied REO auctions

REO properties that are occupied are increasingly being disposed of via online and live auctions. These transactions typically are conducted immediately after the completion of the foreclosure process.

With these properties, the lender or note holder decides to move the property directly, instead of taking the title, evicting the occupants, making any necessary repairs and then returning the property to the market.

As this approach grows, real estate agents can get involved in these transactions on the behalf of buyers. Listing agents generally are not used, but buyer’s agents often can get referral fees if their buyer registers them online with the auction company.

3. Vacant REO auctions

Unoccupied properties often are easier to sell, and thus, these transactions are most similar to a traditional home sale. Properties are typically available to examine, and some will even have scheduled open houses.

Many of these auctions involve agents on both ends of the deal. The lender might assign a listing agent and set terms for agent compensation on both ends of the sale in advance. So be aware of any pre-existing terms when you get involved in one of these auctions.

Because properties are more accessible, it is critical for buyers and their agents to research these properties thoroughly before purchase.

Although most buyers look into buying via auction to find bargains, the reality is the competitive nature of auctions can lead to higher sales prices than traditional methods, depending on the market.

According to RealtyTrac, the average sale price of REOs sold this past first quarter was 87 percent of the average estimated market value of those properties.

There are still bargains to be had, however, especially for savvy buyers and agents who have done their homework.

Online auction sites such as Auction.com and Hubzu.com are making auctions an increasingly attractive option. And it seems likely that soon, real estate agents will be using these sites to start posting traditional home sales, as well.

In fact, Auction.com recently expressed its intent to expand its online marketplace with move-in ready homes, as well as its desire to incorporate agents and brokers as part of its business model.

Real estate agents should consider registering with these sites to get their profile in front of users, and it also will boost their search returns online.

These sites offer extended marketing reach with the efficiency of an online auction. If you add in the local market knowledge and client relationships of experienced real estate agents, it could make for a winning — and profitable — combination.

For real estate agents who know the different types of auctions and how they can work as part of their business, the path to success could be paved for years to come.

Wendy Forsythe serves as executive vice president and head of global operations for Carrington Real Estate Services LLC. Follow her on Twitter.

Email Wendy Forsythe.

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