Posted: Oct 23, 2007
As real estate buying opportunities continue to flood the horizon, beware not to get caught up in the hoopla and hype that accompany auctions. A very successful auction was recently held in the Twin Cities where over 350 houses were auctioned off to an anxious crowd of bidding investors.
Absolutely! The sellers of these homes fetched top dollar in a down market!
Isn’t that a little contrary to what we’ve heard in all the headlines over the past year? You bet it is!
The marketers of these “foreclosed” homes are brilliant. Hundreds of thousands (if not millions) of dollars were spent in marketing the “deals” that can be obtained at “The Auction”.
They packed the house with buyers seeking incredible buys; those with hopes of getting rich through real estate investing!
The problem in such scenarios is this: Too much competition!
When there is demand, the price increases! When demand is low, prices fall as motivation to sell increases. Low demand on real estate yields a better price for a purchaser. This is true in our market today, but is not the case at public real estate auctions.
One of the key benefits of our Xtreme Investor Program is that we attempt to bring all our investors in “under the radar” of any competition. We do not want the competition to bid up prices. Our objective is to help our investors obtain the best prices now, while we have this 6-12 month window of opportunity. Many buyers and investors realize this today, but are hunting for the deals in the wrong places.
Auctions can be stimulating and educational, but are not always profitable for the buyer – at least not as profitable as buying under the radar of competitors.
Nearly every property that gets auctioned off is a property that has failed to sell as an MLS listing (a Multiple Listing Service listing with a real estate agent). The home could have been listed on the MLS prior to foreclosure (for the seller) and most likely was listed after foreclosure for the lender. In both instances this house failed to sell.
After failing to sell on the open market, the house is now set for a public auction (not to be confused with the legal auction that takes place at time of foreclosure / sheriff sale). The excitement of a “public” auction is just what is needed to move the house.
A public auction costs money to put on; a lot of money. As a result, the lender rarely places a house in a public auction before trying to sell it by using traditional means of selling through an REO (real estate owned) real estate agent on the MLS.
When buying at a public auction, not only is the buyer likely to pay too much, but the lender protects itself by having a “reserve” amount that they will not sell below. This does not benefit a would-be buyer. This basically ensures that a buyer can not “get fortunate” and buy a house too cheap.
The “Opening Bid” is lower than the “reserve” amount and the reserve amount is something that is rarely known in advance of the auction commencement. If the bidding does not rise above the reserve amount, the lender will not sell and the buyer will not be able to buy even if they have the highest bid.
Buyers of publicly auctioned property must bring “certified” earnest money deposits to the auction. The deposits vary from 5% for owner occupied purchases to 20% for non-owner occupied purchases (investors). Closings must take place within 30 days. Pretty tough terms for a buyer purchasing in a strong “buyer’s market”.
Buyers of publicly auctioned property will not get a chance to inspect the property should they win the bid. All sales are final and properties sold “as-is”. Many foreclosed homes are in need of repairs and can cost a lot more to fix up than what meets the eye. “Let the buyer beware” rings true when buying foreclosed property, especially when buying at public auctions.
Publicly auctioned property is usually available for previews and/or inspections one to two weeks prior to the auction. If a prospective buyer wanted a professional inspection on a house they planned to bid on, this cost would be incurred in advance of any winning bid.
It is quite a disadvantaged system when a would-be buyer, spends $400 for an inspection in advance, on a house they hope to buy and gets outbid by a zealous bidder. Oftentimes buyers will simply keep bidding the price up on a house simply because they have already invested $400 in it!!!! Ouch!
Buying without all kinds of competition is the key to buying smart in today’s market. There are “pearl” properties out there and we are finding them for our Xtreme Investors today! Are they easy to find – no way!
Uncovering motivation, determining value and delivering these pearls to our Xtreme Investors is what we do. And we’re good at it.
When buying without competition, we are able to help the buyer:
We are also able to help our buyers & investors by:
If you are not yet an Xtreme Investor, it’s time to get on board! Join the ranks of Twin Cities buyers and investors that are getting Xtreme. We look forward to working with you! Learn more.
Commenting is closed for this article.
Our nation is at an interesting juncture. Our economy and banking system is under incredible pressure; one of a serious nature.
The mortgages which were written between 2004 and 2006 paved the way for the collapse in real estate prices, which in turn has been pulling down all other areas of the U.S. economy. Currently there are over 1 million foreclosures across America. The frightening fact is that there are more than 6 million mortgages that are 30 days or more in arrears! This is potentially more serious than anything we’ve seen yet.
Posted: Sep 25, 2008
We are in the midst of tough real estate recession; the worst this country has seen in decades. Real estate prices in some areas have fallen to the point where many people are paying more on a mortgage than their property is actually worth!
Posted: May 14, 2008
©The Scislow Group, Inc 2007 All Rights Reserved
