Chasing the Market Down

The Role of the Minimum Bid in the Auction Marketing Process

A critical component of LFC’s Internet based, Freedom Realty Exchange auction marketing program for residential property, is the minimum bid. Rather than react after the fact in a downward trending market with evermore incentives and lower and lower pricing, a low minimum bid creates a sense of buyer urgency to become emotionally involved in the property and entices potential buyers to bid the pricing upward to the property’s current market value from an artificially low starting point. In effect, the minimum bid allows the seller to submarine under the market chaos to capture the sale at current market value. (The seller is protected from selling the property too cheaply by an unpublished reserve price.) To illustrate this very important aspect of the Freedom Realty Exchange auction marketing process the following article appeared in the Los Angeles Times on August 12.

“……GMAC took over ownership after the foreclosure. The lender asked Leo Nordine, a veteran foreclosure agent based in Hermosa Beach, to clean up the house and evaluate it for resale.

On March 15, Nordine filled out his first report on the property, a lengthy form requiring him to give GMAC comparable sales in the neighborhood and his recommendation for a suggested price. Under the entry “property values,” he checked the box for “declining.” Next to “number of competing listings in subject’s neighborhood,” he wrote: “Tons.” He recommended a low price to get out in front of the market. His suggestion: $425,000 for the house as it was. He emailed the report to the GMAC offices in Shelton, CT. The lender stuck a price of $445,000 on the house. No one wanted it.

On May 30, Nordine filed an updated report. Nordine advised reducing the price to $409,000. GMAC agreed to drop the price, but only to $419,500. Six weeks earlier, that might have done the trick. Not anymore.

A week later, Nordine filed another evaluation: “No problems, other than the cataclysmic market.” He recommended $399,000. The lender didn’t respond. On June 27, he suggested $390,000. Lower the price, he urged yet again: There are three times as many lender-owned homes on the market now as there were a few months ago.

On July 31: This is the worst market I’ve ever seen.” He proposed $385,000. There was no answer. To sell the house now, Nordine said late last week, would require a price of $379,000. Last Friday, the lender sent Nordine an e-mail authorizing him to drop the price to $395,000.

If this property would have been auction marketed in March utilizing the competitive process of the Freedom Realty Exchange program and a minimum bid of $295,000, it would have been sold and closed by June at its absolute highest value which most likely would have been something north of $410,000 assuming that Nordine’s May valuation was accurate. The Freedom Realty Exchange program doesn’t create a market but rather it focuses the attention of the existing market, whatever it may be, on our client’s property at the expense of its competition. Call (949-706-6121) or email (info@lfc.com) us today to find our more about the Freedom Realty Exchange auction marketing program for residential property. You will be impressed….I promise.

William Lange, President of LFC Group of Companies

Fed Injecting Money Into Financial Markets

The Federal Reserve said today it’s providing liquidity to financial markets to keep them running smoothly. Here’s a clip from a short statement on its web site:

The Federal Reserve will provide reserves as necessary through open market operations to promote trading in the federal funds market at rates close to the Federal Open Market Committee’s target rate of 5-1/4 percent. In current circumstances, depository institutions may experience unusual funding needs because of dislocations in money and credit markets.

The Fed and foreign central banks are responding to a drop in demand for securities backed by mortgages as well as losses by investment funds that hold the securities.

Early today, the Fed accepted a larger-than-expected $19 billion in three-day repurchase agreements, as a way to inject liquidity into the banking system, reports the Wall Street Journal. This comes on top of the Fed adding $24 billion yesterday.

Here’s a clip from the Journal’s web site:

The federal-funds rate – the rate at which banks make overnight loans to each other — had risen to 6% early Friday, sharply above the Fed’s 5.25% target rate, suggesting demand for reserves ahead of the weekend, according to John Silvia, chief economist at Wachovia Corp. After the $19 billion injection, the rate fell back toward the target.

Bloomberg reports that the $19 billion was provided by the Fed accepting mortgage-backed debt as collateral. (Hat tip to Calculated Risk blog.)

The European Central Bank on Thursday loaned an unprecedented 94.8 billion euros ($130.2 billion) in emergency funds to European banks.

And Asian central banks are adding cash to their banking systems, reports Reuters. Here’s more:

A Bank of Japan official said the bank injected funds at its regular money market operation on Friday due to a slight rise in the benchmark overnight call rate. The bank for the world’s second-largest economy offered to supply 1.0 trillion yen ($8.45 billion) in funds — at the higher end of market expectations.

The Reserve Bank of Australia pumped more than twice the usual amount of money into the banking system, injecting A$4.95 billion ($4.19 billion).

The banks acted to ensure there were enough funds for money markets to operate smoothly and to prevent short-term rates from spiking. The moves did not represent a substantive shift in monetary policy, analysts said.

By Mathew Padilla, Orange County Register

AIG Reassures Investors About Subprime

American International Group on Thursday told investors the housing market would have to spiral to Depression-era levels before the insurer would be harmed by its exposure to the residential mortgage market.

The world’s largest insurer has exposure to subprime loans — those made to people with tainted credit — as a lender, investor in mortgage-backed securities and supplier of mortgage insurance. But AIG characterized its exposure as minimal and said it would take declines of 30 percent to 40 percent in home values to dent the market for mortgages with stronger ratings, where most of its holdings lie.AIG said delinquencies on first-lien mortgages were on the rise at its mortgage insurance group. But the company also reassured investors that it has ample cash and “doesn’t need to liquidate any of its investment securities in a chaotic market.”

Cliff Gallant, equity analyst with Keefe, Bruyette & Woods Inc., estimates that of AIG’s $1.034 trillion in assets at June 30, it has some $3 billion to $5 billion that could go bad in subprime defaults — a thin slice of the overall pool.

It amounts to about $1 per share in exposure, “a reasonable worst-case scenario,” he said.

Analysts, on average, expect AIG to earn $6.53 per share this year.

As conditions in the credit market have tightened, investors have been sensitive to any sign of a ripple effect, in which the fallout from defaults on subprime loans would spread to other parts of the lending market. Any news of subprime mortgage or credit problems has sent stock prices reeling; on Thursday, the Dow Jones industrials were down by triple digits on concerns about liquidity in the credit markets.

“We believe that it would take declines in housing values to reach Depression proportions — along with default frequencies never experienced — before our AAA and AA investments would be impaired,” said Chief Risk Officer Bob Lewis, in a conference call with analysts on Thursday. “AAA”- and “AA”-rated investments are considered to be those of highest credit quality.

Home prices would have to slide by more than a third, and defaults among borrowers with strong credit would have to balloon above 45 percent, to begin to affect the AAA and AA bundles of securities, the company said.

As an investor, AIG has about $94.6 billion in residential mortgage market holdings, equal to about 11 percent of its total invested assets. Of that, the company has $28.7 billion, or 30 percent, in subprime residential mortgage-backed securities.

AIG has said repeatedly that it is “very comfortable with the size and quality of its investment portfolios.”

AIG’s American General Finance, which originates mortgages, has about $6 billion of its $19.2 billion real estate portfolio invested in the subprime space.

United Guaranty, AIG’s mortgage insurance arm, said first-lien mortgage delinquencies had risen to 3.98 percent in June from 3.71 percent in May.

President and Chief Executive Martin Sullivan told investors that the company remains “well-positioned, even in the event of further deterioration in this market.”

AIG shares fell about 3 percent Thursday amid the broader downturn in the market.

On Wednesday, after the market close, AIG reported a 34 percent jump in second-quarter profit on growth in its general and life insurance businesses. Its mortgage guaranty unit posted an operating loss, but the business accounts for a relatively small part of the company’s overall earnings.

By Lauren Villagran, AP

LFC TO AUCTION REMAINING ICON OF ADELPHIA’S EMPIRE

 

Look what a $1,000,000 minimum bid could buy

Dateline: (Newport Beach, California) Adelphia Communications’ former corporate headquarters is a first class office space built at the height of their scandal-ridden bankruptcy and ensuing legal difficulties. The stunning 72,056 square foot, three-floor office building with fully-finished basement on Coudersport’s main street serves as a reminder of Adelphia’s impact on the local economy and the state of Pennsylvania. The three year old corporate pad is just off Route 6 connecting Coudersport to Eastern and Western Pennsylvania and can house an estimated 300 employees with total internet connectivity.

 

LFC Online, the leader in online real estate auctions, in conjunction with the Grubb & Ellis Company, has been selected by Adelphia to sell this former headquarters building in a “must sell” auction marketing campaign. The winning bidder could own this center of operations at a fraction of its estimated $30 million value. In a previous online auction, LFC sold over 70 properties for Adelphia scattered throughout the United States. Some bidders walked away with a one thousand dollar steal!

 

With LFC Online’s transparent auction process, targeted marketing technology, knowledgeable auction managers and proprietary state-of-the-art auction innovation, LFC has established a footprint in the online auction industry.

 

“In the coming years the real estate market is expected to see a big increase in auction inventory due to corporate liquidations, bankruptcy sales and foreclosures. LFC is on the forefront of this phenomenon. The LFC online program offers our sellers and buyers a transparent, honest and highly efficient way to sell and purchase real estate anywhere in the world,” comments William Lange, President of the LFC Group of Companies.

 

Please visit www.lfc.com/695R3 for more information about this auction.

 

LFC Group of Companies For over 30 years, the LFC Group of Companies have served numerous Fortune 500 companies, real estate developers, investors, financial institutions and government agencies by auction-marketing thousands of commercial, industrial, land and residential properties with an aggregate value well in excess of $2 billion.