Friday, August 21, 2009

136-TNG Radio - Tommy Williams 8-22-09

This week Bruce is joined by Tommy Williams. Tommy is certified by the Auctioneers Institute. He is the founding partner of Williams and Williams Auction Company. He served as president between 1986 and 2000, and he became board chairman in 2001. He has conducted over 10,000 auctions all over the world. Tommy is also part of our I Survived Real Estate 2009 expert panel.

Tommy Williams has done auctions in multiple countries such as Puerto Rico, Canada, and his company is working with companies in South Africa. Bruce thinks that bank owned properties are probably very prevalent in other countries as well so their auction business has probably picked up. What has occurred in the United States has occurred all over the world. Tommy thinks that it is amazing that a country so far removed from the United States, like South Africa, has gone through the same economic swing. The entire world is experiencing the real estate bubble bust.

The United States auctioning business has gotten better. The number of auctions have increased, and auction popularity has increased for many years as well. However, the auctions are not making as much money because the real estate market prices are not doing well.

In 2003-2008, the business for residential real estate went from $11.5 billion to $17 billion. The volume has gone up, but the pricing has gone down very far, so auctioneers have to sell larger numbers of units to achieve the same profit. In many areas of the United States, home prices are down 75 percent from their peak. Bruce recently bought two properties, from a lender, for 15 percent of the owed amount. This is not an unusual occurrence. In many of these cases, the original buyer had a very bad loan. Fraud is involved in many of these cases. A property that may have never been worth 10,000 to begin with may have been given a mortgage of 100,000.

It was common in the lower end of Moreno Valley to have a neighborhood in which each property was selling for $300,000, but now the price for those homes is generally around 100,000. The buyer and lending mindset was very different in 2005.

Bruce asks if the auction business has shifted to making the multi-property owner to be its main customer rather than the individual property owner. Tommy says that he hopes this is not true. He believes that if you want to build a successful auction company then you need to deal specifically with normal “end-user” buyer and seller. The focus of an auction company should always be to deal with private owners/investors. There are very few companies that deal with REOs, and that is not a long range way to build a business.

Deutsche Bank recently said that by 2010 or 2011, 50 percent of the owners in the United States will be upside down. That would have a profound effect on the amount of inventory that would be able to sign up for a one house auction. The most important thing about a house that is upside down is that the seller needs to sell their house. Either they cannot afford their house any more, or they have had a change in lifestyle such as a job transfer or a divorce. People need to sell their properties at the time they become a liability. If they go through a long foreclosure process then their property will deteriorate, and their neighborhood may deteriorate, and they will end up selling a property for less than they could have.

A Campbell Report that came out in which 1,000 agents responded to a questionnaire. These agents claimed that the biggest problem they were dealing with was a lender’s slow response to a short sale offer. It takes months. The auction business could help the lender decide what the value of a property is. Auctions can identity, with nearly absolute certainty, what the market place thinks a property is worth. If multiple people bid on a property, and the highest bid is $100,000 dollars, then you have discovered what the market value for that property is. It is frustrating to see lenders take such a long route to discovering the truth about the value of their property, and take a huge price hit in the process. Lenders have dealt with the problem of over valued homes in the worst way possible. Tommy had a neighbor who went through a divorce and had other life changes. This neighbor bought his property for about $650,000, and he started going delinquent on his payments. Tommy told him his house would sell for about $450 to $500,000 at that time. This neighbor believed Tommy to be correct, but his lender would not negotiate with him, so he went through the foreclosure process, and he eventually walked away from it. This home recently closed for about $370,000 and Tommy could have sold it for much more. Tommy has been trying to tell this story to congressmen and senators, so that these problems may be fixed in the future, but they will not listen.

This is one of the reasons why I Survived Real Estate 2009 is so important to Bruce. Every industry affects other industries. Fortunately for Tommy Williams, he has not had trouble with appraisers arguing with the price that homes have sold for at his auctions, because the value is proven by the market place. One of his colleagues sold their home, and their lender told them that they would not lend money on a home bought at an auction. The National Auctioneers Association immediately contacted them and asked them to explain this policy, but they would not. This problem did not occur with a small lending company.

The word “auction” has a bad meaning in the United States. Here, it means that you have a desperate seller. In 2004 to 2006, Bruce was receiving multiple offers on each of his “for sale” properties. If Bruce had thought to offer those homes in an auction, which would put each of those buyers in direct competition with each other, his selling prices would have definitely been higher. When the market is really over heated, that is when you want to have an auction for sure. Under desperate times, such as right now, the reason why you have an auction is because buyers will not show up if you use any other method.

On September 11, the builders will be attending the real estate event. Bruce thinks it would be a perfect partnership if builders started selling with auctioneers. Tommy has had this opportunity on two different occasions. At the time, everybody thought this was crazy, but the auctions were very successful. If Tommy was in the building business, he would launch his selling process with an auction. Bruce is planning on getting involved in building soon, and he plans on using auctions for selling his houses.

When you participate in the boom market, it is easy to sell, so you do not think about auctioning your home. Also, auctions are typically seen as an option that is only used in a tough market. The auction is viewed different ways in different countries. In New Zealand, auctions are one of the first options used for selling homes. Views towards auctions also vary in different states. States like Tennessee, Ohio, and Missouri have a much more positive view towards auctions than states like California.

Tommy has found it difficult to buy bulk properties within the last six months. There are opportunities out there, but good businessmen would not go after those opportunities.

We look forward to seeing Tommy Williams September 11th at I Survived Real Estate 2009.

Tommy served as President of the National Auctioneers Association in 2008 and is current Chairman of the Board. Tommy also graciously took part in I Survived Real Estate 2008 last year and will also appear on the I Survived Real Estate 2009 panel.

Thomas L. Williams is a graduate of Penn State University (B.S. Animal Science) and the Certified Auctioneers Institute (CAI). Representing the third generation of Williams family auctioneers dating back to the mid-1800s, Williams is also a graduate of the historic Reppert School of Auctioneering. He has over 40 years experience in real estate auctions, land development and real estate investment. He currently serves as President of the National Auctioneers Association.

A founding partner of Williams & Williams, Williams served as president from 1986-2000, and became board chairman in 2001. He also co-founded and served as managing partner of Lowderman & Williams Auctioneers from 1965-85. He has conducted over 10,000 auctions in all 48 of the contiguous United States and Canada, and is an advisor to auctions conducted throughout Western Europe, South Africa, Australia and New Zealand.

An avid cattleman, Williams also owned and operated Bradmar Angus Farms from 1965-85, after which he continued to serve as a herd and genetics consultant for many of the nation's premier Angus cattle breeders.

Williams is a licensed auctioneer and real estate broker in over 20 states, and an active member of the National Association of Realtors.

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