"TWO-EIGHTY-FIVE," screamed the auctioneer from his podium, pointing his gavel towards the man in the third row who had made the next-to-the-last bid. "TWO-EIGHTY-FIVE," he screamed five more times, never taking his eyes off his mark. He paused for a breath and repeated the onslaught three more times. Finally, sensing no further movement from the man, he turned, scanning the audience and his horde of assistants running through the aisles, while he shouted, "Going once. Going twice. Sold for two-eighty." This was a scene repeated over and over that night as around 50 bank-owned homes were auctioned off at the Ventura County Fairgrounds in front of a crowd of 500 or so people, many of them hoping to get a bank-owned / REO property at a bargain price.
I was at the auction, held by the Real Estate Disposition Corporation, because a client of mine was interested in four of the homes located in Thousand Oaks that were to be auctioned off that night. I'd previewed them for him two weeks beforehand, and while he'd decided against participating I went anyway to see what kinds of bargains were to be had. The auction started with a brief explanation of the rules.
- You must be registered and have a cashier's check for $5,000 made out to yourself.
- You must be able to write a check for 5% of your winning bid. (The difference between the $5,000 cashier's check and the 5% deposit.)
- There is a 5% buyer's premium added to all winning bids. (If your winning bid is $300,000, then add $15,000 for a total purchase price of $315,000.)
- The successful bidder will be ushered to a bullpen to be qualified and have his bid confirmed. Once that's done a screen listing that home's auction number turns green. Otherwise, it goes back for a second time (or a third, as happened twice that night.)
So were there any good deals to be had that night? Absolutely. Some homes sold for maybe 15-20% off current market value once the 5% "Buyer's Premium" was added to the price. Most of the homes sold for less than a 10% discount. A few homes sold for market price. I was fascinated to note how many bidders didn't have their bid confirmed and the homes were auctioned off a second or third time. In many cases, the original bidders who came for just that home had already gone home causing the final price to drop $5,000-$20,000 from the first.
This type of auction is not for everyone. There is no safety net. No inspection period. No disclosures of condition. You have to do all of your homework in advance and there is no cooling off period. Is it worth the risk for a 15-20% discount? That depends on your tolerance for the risk you're taking on in exchange for the discount. If you decide to bid at one of these auctions, make a friend of a contractor so you can have him visit the homes you're interested in with you beforehand. Do research on what similar homes are selling for in the neighborhood. Use your favorite Realtor to help since many auctions will pay a Realtor's commission at no cost to you. Most importantly, decide on what your maximum bid will be before you get in the car to go to the auction. The auctioneer is counting on the fact that you will lose your good judgement in the heat of the moment. Remember, there is always another house!