Real Estate Auctions– What Buyers Don’t Know Can Really Cost Them– If you’ve been tempted by the “great deals” you’ve heard that “somebody somewhere” got at an auction, please go in with both eyes open. Here are a few auction basics which many people are not aware of.
1. Know the difference between Trustee Sale auctions (usually held at the steps of the courthouse), and private auctions. Trustee sales are CASH only. You don’t get to preview the property, and it may come saddled with any number of liens, including mechanics liens, back taxes, IRS liens, all of which you will become responsible for. Private auction companies, like REDC and Hudson Marshall, will allow you to finance the property, and will also charge you a 5% buyer’s premium on top of your winning bid amount. You can bring your REALTOR(R) and pre-register. You can also preview the property prior to auction, and all liens have been satisfied. Tax auctions happen more infrequently and information can be found on the county website.
2. Banks are notorious for setting the opening bid to equal the amount they are owed, plus legal fees, etc. This price is usually far above the current fair market value, so it isn’t surprising when nobody bids. In this case, the property will revert to the bank, and you’ll see it reappear later as an REO (real estate owned). At this point, it is priced more reasonably, and hopefully priced to sell. REOs can be a good buy, but lately we’ve seen most receive multiple offers, thus driving the price up.
3. Expect postponements at the Trustee Sale. The last few auctions I’ve attended had over 60 properties on the docket, but only a half a dozen were actually auctioned. The rest were postponed; reasons vary, everything from bankruptcy to mutual agreement, short sale, etc.
4. You can order a preliminary title report from your title company, and get the heads-up on outstanding liens and other property issues which will affect the value, and how much extra money you will have to kick in to end up with a property that’s free and clear. Plan to spend about $350-$400. This is an essential step if you are going to bid at a Trustee Sale.
5. Before you buy, atttend a few auctions and observe. You will notice a few regulars at each auction. These are the professionals. Listen, watch and learn. Do your homework upfront, as the basics change by state. Go to www.realtytrac.com for good basic definitions and explanations of the foreclosure process.
6. Call me!
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