Saturday, June 23, 2012

Are Stupid People Running Banks?

I mentioned last May that I had attended a real estate auction across the road from my house.  I attended partly because the minimum bid was $50,000 for a modest, 1750 square foot home on a bit less than seven acres.  If no one showed up--well, that would be a reasonable investment.  (No, more like a steal deal.)

A number of people showed up, and there were even online bidders.  The high bid was $93,000, from a couple that included the daughter of another neighbor.  Ever since, I have been waiting to see them move in--but it didn't happen.

I talked to the neighbor today, and he told us that the bank refused the bid.  They certainly have the right do so--but I find myself wondering: if you were not prepared to accept $93,000, why did you set the minimum bid at $50,000?  I'm sure that the bank had to pay the auction company some money for setting up and running the auction.  Why bother doing this when you know that you aren't going to accept $93,000?  This is just stupid.


  1. I take it the bids were cash? I.e. the neighbor's creditworthiness was irrelevant (and you're pretty sure they're telling the truth).

    One wonders ... was the bank just going through the motions to improve their statistics? Was the bank local?

  2. They had a loan preapproved. The bank that owned the property had no risk.

  3. I agree that it makes no sense, but my understanding is this sort of thing is common with house auctions these days.

    Start an auction out at a "teaser" unbelievable low amount to get more people interested with the hopes that more people will be attracted and will result in a bidding frenzy (one often sees this done on ebay for example). But since the seller doesn't want a loss or give-a-way have a reserve amount or the option of refusing as in this case.

    It would be interesting to know how much doing that actually cost them. Perhaps not as much as we might think....

    Perhaps they will try again and set the minimum much closer to what they are willing to accept.

    The idea of getting property at an incredibly low price reminds me of stories I have heard from old timers about the depression. During the depression anyone that had cash could get things that just a year or two before were worth a lot of money. One old boy talked about not trusting banks back in the 20's so when the crash happened his thousands in his belt bought him a nice farm, etc!

    The Statesman and other news sources are claiming that the SW Idaho real estate market is on the rebound and there are bidding frenzies between first time buyers looking for a home to live in and believe-it-or-not the return of the speculators. Maybe that's why the bank wants to try again.....

  4. As the third comment says setting an opening big price below the reserve price is a common auction traffic. It draws interest from bargain hunters and people often will bid more if they know other people are willing to pay almost as much (this last is also the reason for various scams involving fake bids or even fake sales to create an inflated perception of worth).

    It could also be the case that the auction company guaranteed the bank a certain price (or else the bank wouldn't have to accept or pay them anything) in order to get the bank's business.

  5. I can tell you that the poor slob that travels to the home/business, provides a report and multiple photographs, posts the auction signs, returns at least once (and usually twice) to replace any signs stolen or blown away, is paid far less than minimum wage when the cost of gas is factored in. Why do I do it? Because it's a job, not a handout.

    Old Coot

  6. How are property taxes assessed? In a reasonably fair system, that house would be reassessed to $93,000, as "the value of a thing is what that thing will bring", which amount was determined by the auction. If the assessed value was significantly higher, the reduction in taxes on this property alone is likely to pay back the costs of the auction; if the bank owns a number of similar properties, the property tax reduction could be quite substantial.

  7. Not sure about the law in Idaho, but here in Illinois, foreclosed properties are sold at the court house. Generally, the bank will just show up and bid the pay off (almost certainly more than the value of the proerty) and will then take possession. I can only recall one instance where a property was sold to an individual.

    However, Illinois is a recourse state. A quick Google search tells me Idaho is non-recourse. That alone would change the dynamics of foreclosure, assuming this home was even foreclosed (although I am not sure why someone would agree to deed in leiu of foreclosure in a non-recourse state).


  8. In California such an auction is not considered an arm's-length transaction, and the County Assessor determines the assessed value.