Lenders are doing whatever they can to sell their inventory of REO homes.  There are entire portfolios being sold wholesale for 60 to 70 cents on the dollar of the BPO price-which can be a great deal if you have $10 million or more to invest. 

Most homes are being assigned to REALTORS® like myself to list, market, maintain and sell the assets on the retail real estate market.  In the Hemet-San Jacinto Valley we saw the number of closed REO sales during the month of June 2008 exceed 70% of all the sales in this local market.  I am sure many other Inland Empire areas have very similar results to report.

Banks though need to sell their homes quickly and many are trying to do that through the auction process.  We have all heard the stories of a savvy shopper who picked up some great home for mere pennies on the dollar.  Now is this an urban legend or do the auction companies play the odds like a Las Vegas casino, knowing they have to let someone win big, every now and then, to bring in the masses.

If you are drawn to the auction circuit, I have several suggestions for you to best prepare yourself for the experience...and yes, it is an experience. 

First, you will need to preview homes before they go to auction.  The auction companies will publish their inventory in advance and hold a series of "Open Houses".  Preview as many of these properties as you can, and take dubious notes.  Study your results and create a "Short List" of homes that would be acceptable to you. 

These short list homes should be viewed a second time.  This time though take someone with you.  Preferably you would like to take a home inspector or a contractor buddy-someone who has a good knowledge of homes, building standards and the various systems that work together making a home functional.  This may cost you a few hundred dollars, but will be well worth the investment of both time and money if it prevents you from buying a home that is nothing more than a money pit.

Second is get your financial house in order.  It is best for you to go through the pre-qualification process with the lender of your choice well before the auction date arrives. Make sure your lender has all of the documentation they need for a quick closing,  so everyone will be ready to move if and when you buy your auction home. 

Yes the auction company will have their own lender available and they may become very competitive with your pre-approval...which can only be good for you.  The bottom line is you need to arrive at the auction ready to borrow and not speculate as to what is and will be involved. 

The Third consideration you must adhere to for a successful auction is experience is to not get caught up in the roller-coaster adrenaline packed auction experience.  If you have followed the lead on the first tow points, you already know which house you like, how much you can and will spend for them-max.  So there is no sense in playing their game with them-because you will lose. 

When the bidding starts, everyone .jumps in thinking they can steal the home.  The auctioneer is rambling in his mile-a-minute monotone voice, raising the price as quick as he can talk.  Wait until the action gets down to the last couple of bidders and if the home is still in your range, jump in as the new player.  You are sure to break the spirit of some, thinking they are ‘that close' to a deal.  These players have been worn out by the emotion of the emotion of the process and are no match for the cool cucumber who enters the bid at the very end. 

This leads me to the FOURTH point that you must be aware of.  This is actually double point that concerns pricing at the auction.  Every home that is put on the block will receive bids-but not every home will sell.  The reason is there is ALWAYS a RESERVE.  Meaning if the bids don't reach the reserve the house doesn't sell.

You also need to be aware of the BUYERS PREMIUM which is clearly spelled out, but often forgotten.  If there is a 5% Buyers Premium and you bid $200,000 for a home you actually agreed to spend $210,000.  So, please be careful and make your adjustments in writing and not rely on your brain working when you need it the most

Finally, if you are an investor realize that if you plan on flipping the property there is a better than good chance that your end buyer will want to bring you an FHA loan.  The FHA guidelines dictate that a minimum of 90 days must pass between your closing and the new buyers closing.  So, take this time into consideration as you plan your rehab and marketing efforts-you must be able to factor in at lest 3 monthly payments. 

I hope you have found this both useful and interesting.  Please let me know if I can be of service. 

Blessings to all who read,  

John Occhi, REALTOR®
Century 21 Crest - CrestREO
CrestREO.Com
Hemet - San Jacinto Valley
951-927-9473

Servicing THE REO Needs of Asset Managers, Banks and Lending Institutions in the Hemet - San Jacinto Valley, Temecula, Murrieta, Winchester, Wildomar, Menifee, Sun City, Perris, Lake Ellsinore, Moreno Valley, Romoland, Homeland, Nuevo, Banning, Beaumont, Cherry Valley, Yucaipa, Redlands, Mentone, Loma Linda and throughout South West Riverside County and The Pass Areas of The Inland Empire in Southern California.  If you are a buyer, investor, first time home buyer or are just interested in REO real estate, please contact us at the above website or phone number. 

This blog and the contents written here is the intellectual property of John Occhi, Hemet California REALTOR®.  The views and opinions expressed are just that - views and opinions of John Occhi and those who comment.  Please note that I am not an attorney or a tax professional and any time I discuss either topic, I suggest you consult with the proper professional for relevant assistance. This blog is part of the ActiveRain Real Estate Network, which is a social network highlighting the best of Web 2.0.  Information is provided with the intent of educating and assisting home owners, home sellers, home buyers and real estate investors with information the can be used to make better real estate decisions. I am proud to be a full time REALTOR® with Century 21 Crest and the CrestREO Division who is proud to be a contributing member of the ActiveRain community.