Auctions - the new way to sell real estate?

By
Real Estate Agent with Coldwell Banker Rox Realty

Are auctions the new way to sell languishing lender owned inventory?  You see the ads on television for Auction.com, advertising paying pennies on the dollar for real estate.  In the next week, there are four auctions with three separate auction companies holding sales in our area.  Most are Fannie Mae properties, but not all.  Pulling the MLS listing on them shows they've been listed anywhere from 90 days to almost a year without offers.

An auction can be a daunting proposition for both buyers and their agents.  First - the big shocker for the agent...the commission.  Two of these companies (www.auction.com and www.williamsauction.com) compensate a licensed agent 1% of the transaction or $400 - whichever is greater.  WOO HOO - call an armored vehicle to take me to the bank!  The third one - www.hudsonandmarshall.com , gives an agent 2 or 2.5% depending on the property.  Each has very exact rules regarding registering your client to get paid.  If you don't do it correctly - kiss that big commission good bye!  When they say register 24 hours prior to the auction, they don't mean the day before.  They mean a MINIMUM of 24 hours and counting.  You also must accompany your client to the auction and check in with your client.  (Rules are slightly different for the on-line auctions, so read the rules!)  The good news - the auction house does all the paperwork.

Each auction house is different and reading the entire terms and conditions for each property your client is interested in bidding on is a must.  A buyer's premium is typical - the amount however varies.  Williams Auction uses either $3000 or 5% whichever is greater while Hudson and Marshall charges a straight 5%.  This is added to the highest bid.  All require earnest funds (cashiers check or cash) to be paid immediately after the auction.  All sales are as-is, where is.  And the big kicker...NO INSPECTION PERIOD after the sale.  As in, you better check things carefully during the open houses before the auction (and allow $$ for repairs after the sale) because there is no cancelling the purchase after the auction without losing your earnest funds as liquidated damages. 

The contracts I've seen call for close of escrow within 30 days and carry a per diem fee for delays.  There is no financing contingency either so you better have your money lined up prior to bidding or you will lose your earnest funds!  If you are financing - make sure there are no issues with the property that could kill your financing.  Getting an FHA or VA appraisal scheduled and closed within the 30 days may be difficult.  Go through the property and look carefully for items the appraiser would require fixed as a condition.  Remember, as-is/where is - there will be NO REPAIRS.  It might be better to pass on a property if you aren't sure.

One positive with buying a property at auction rather than trustee sale - you get a marketable title with title insurance.  All liens, HOA fees/assessments and back taxes are paid at escrow.  When you buy a trustee sale - you buy it with whatever baggage is on the title report.

My advise for anyone considering buying a property at auction - DO YOUR HOMEWORK!  Read all the terms and conditions, read the sample contracts.  Go to the open house and do the best inspection you can considering the constraints.  And pay attention to this comment:  DON'T get caught up in the excitement of the auction.  Set your top dollar price and don't go over.  Don't think "it's only $1000" because then it's 2...3...4,000 more than you should have spent.  And agents - have your comps ready!

Buyers can get a bargain buying at auction - but there are risks and you need to do your homework first!

 

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Topic:
Home Buying
Location:
Arizona Pinal County
Groups:
Active Rain Newbies
Arizona Homes
Arizona Real Estate
It's A Buyer's Market
Tags:
buying at auction
casa grande homes
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Rainmaker
908,388
Pamela Seley
West Coast Realty Division - Murrieta, CA
Residential Real Estate Agent serving SW RivCo CA

Auctions are not for the faint-hearted.  I think they are a terrible way to buy a home, but that's just MHO.

Nov 04, 2010 06:43 PM #1
Rainer
57,664
Jose Dias
Home Sellers Help in Scottsdale-Phoenix-Peoria-Glendale - Scottsdale, AZ
Sell Your Home in Scottsdale-Phoenix-Peoria-Glendale-Goodyear

Bea,

I have just helped a client buy a home through auction.com. I am not going to do that again. In the future if a client asks me to show properties that are at auction, I will decline and refer them to another REALTOR. I am not saying that they can't get a good deal. They can. I myself bought my first investment property from a live auction from REDC.

However my business model is not built to sell homes through auction houses. I can't afford to spend all the time showing homes and earn only 1% commission.

Until they treat us with respect and recognize the value we bring to the table, I am not selling another auction home.

Nov 04, 2010 06:53 PM #2
Rainer
140,614
Maureen Fukumoto
Help-U-Sell Realty Pro - Mililani, HI
Maureen

I think it will be a long time berfore that catches on in my market. I've seen a few advertised but I don't think they were successful.

Nov 04, 2010 06:58 PM #3
Rainmaker
1,025,715
Tim Lorenz
TIM LORENZ - Elite Home Sales Team - Mission Viejo, CA
949 874-2247

Out here in CA the companies we have worked with are not that crazy and the commissions are fair.

Nov 04, 2010 07:03 PM #4
Rainmaker
590,833
Phil Leng
Retired - Kirkland, WA
Phil Leng - Retired

Hi Bea,

Banks are trying to get "market price" for their homes, and many of them aren't selling, so they try to sell at auction.

Phil

Nov 04, 2010 07:12 PM #5
Rainmaker
291,454
Kate Bourland
Marketing with Kate - Redding, CA
Onlilne Marketing Mobile Marketing

This makes me smile.  20 years ago during a market downturn, Auctions were the new way to sell real estate.  The cycles of life always make me smile.  What once was old becomes new again!

Nov 04, 2010 07:15 PM #6
Rainmaker
821,038
Dan Edward Phillips
Dan Edward Phillips - Eureka, CA
Realtor and Broker/Owner

Good Morning Bea, we are starting to see auctions in this area, thanks for sharing the information.

Nov 04, 2010 09:58 PM #7
Rainer
53,785
Bea Lueck
Coldwell Banker Rox Realty - Casa Grande, AZ

Good Morning!

@Pam - No indeed.  Your bloodpressure skyrockets during the auction. Before I became an agent, I helped my daughter get her first house through an auction.  It was a bit daunting without an agent to say the least. I don't recommend it - use an agent!

@Jose - When one of my clients selected a house that was under auction terms as "the perfect house" I explained how the auction company paid the agents.  I asked them to sign a buyer-broker agreement with an additional 1.5% commission payable at COE.  If they didn't get the house, no fee.  If they didn't want to sign the agreement, I'd still help them.  They however understood I wanted to get some fair compensation so they signed.

@Phil - The auction price depends on the bidders that day.  Owner occupants will pay more than the fix/flip investors.  Banks would do better to just lower the asking price.  When I pull comps for my investors, many times I see the list price was equal to a house that didn't need new paint/carpet etc.  They haven't figured out you can't get top dollar for sub-par appearance.  The trend I've noticed there is the listing agent is from out of area...

@Kate - kinda like bell bottoms!

Nov 05, 2010 03:54 AM #8
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Rainer
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Bea Lueck

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