You’ve heard about real estate auctions and you may be wondering if this is a good way to purchase your next home. Some people have had a successful experience…some have walked away with what they thought was a great deal! Others have sorely regretted the experience. I recently went to a real estate auction with one of my clients and I was greatly surprised. Here is what happened.
We arrived about 10:00 am. There were four huge buildings and a large tent outside. The auction was going on simultaneously in all the buildings. (and tent). The spotters were communicating the bids to the auctioneer via walkie talkies from each building. The properties were viewed by the audiences via big screen monitors and speaker systems simultaneously each building.
Before the day of the auction my client and I had gone to look at several of the properties that he was interested in. Most importantly, I had talked to a past client of mine who told me that his sister had worked for the auction company. She had hired him & several others to bid. He was paid a $100 each day. He was given a list of properties and told to bid on them if they didn’t reach a certain price. He was a shill. These people are hired by many of these auctions companies just to make sure that nothing is sold below the minimum that the seller wants for the property. I don’t know if all auctions operate this way but how can you know?
When we had arrived that morning we ran the gauntlet of stacks of people all in line to get bidding numbers. First we had to show that we had a cashiers check for each property that we wanted to bid on. $5,000 for the first purchase and $10,000 for each subsequent purchase. It was required to have a check book for the balance of the deposit if you won a bid. Buyers are also required to bring a prequalification letter from their lender, and a valid ID (drivers license will do). I, as an agent for a client, needed a letter from my broker saying it was OK for me to represent my client at the auction (since I am my own broker I just wrote the letter my self). It had to be on the company letterhead. To complete my package I had to have a copy of my real estate license. And by-the-way don’t think your going to go there with any of this package missing and be allowed to bid. The rules are very strict if you don’t have your check book, I hope you’re close to home because you will need to go and get it!
The buildings were so full of people that there was not a single seat left. People were standing along the edges of the crowd. The big tent outside had a couple of seat left so we sat there. After freezing in a drizzling rain for half a day, the properties we were interested in finally reach the auction block. As soon as my client began to bid one of the spotters move over into position right next to him. Every time someone else bid she would encourage him to bid higher, repeating what the last bid was and every time he bid she would throw up her hands as a signal to master spotter who would immediately send the message over the walkie talkie to the auctioneer. This went on for a very short time but was extremely fasted paced.
The first two homes went higher than my clients limit and so he decline to bid any further. The third one however… he seemed to really want so he actually bid higher than his limit and became the successful bidder. The property was his!
Think this story is over..not yet! By then it was nearly 5:00pm. Immediately the contract team moved in. These were the guys sent over to get the contract signed. The contract was another surprise. It was over 30 pages. All written in favor of the sellers. I saw nothing that could possibly protect my buyer…Nothing! This is a real “Buyer beware” situation. Here are some of the other things that I found disturbing..
1. Even though we had gone through all this trouble to buy this property the bank had the right to cancel our purchase within the next 15 days. (This is probably in case the shill was sleeping.)
2. There were absolutely no rights of inspection. If you hadn’t gone to the open house you would not even see the inside of the property before you close. You are buying As-Is with no rights of inspection! What if the foundation was compromised or the plumbing was leaking throughout the structure.
3. You needed a 5% deposit on the first property. This included your cashiers check along with a personal check. If you buy a second property 15% deposit is required. On normal sales a 3% deposit is the maximum allowed under the default clause in normal contracts.
4. There was a 5% premium added to the bid. My clients bid was $370,000 so an additional $18,500 was added to the sale price. And this also increases your property taxes on the home.
5. There was a $500.00 per day penalty for not closing on time.
6. Thirty days later we went to close the escrow. The escrow office was so over taxed with all the auction properties that they couldn’t even give us an escrow officer to sign us off. Our questions were answered by a notary hired by the escrow company to do the signing. Several big mistakes were made and we had to return to correct them.
7. The escrow officer told me that the day after the auction many people had called and expressed that they had made a mistake and regretted their purchase. Could they change their mind? The answer was “No” not without losing their deposit. Have you ever tried to get back a cashiers check after you signed it over to an auction company? It might be possible but I think you’ll need a lawyer!
If you still think it’s a good idea to buy your home at Auction… go head…. “Make their day” Here are some things that will help you out:
1. Be sure to read all the fine print in the auction booklet.
2. Go online to view the properties.
3. Get the online disclosures. (The one for the property we purchased was not accurate)
4. Go to the open house scheduled by the auction company if you can.
5. Don’t forget to get a copy of the contract on line (if available) so you can review what you are signing.
A few weeks after the auction my client and I bought a nearly identical home in the same tract. This house was roughly the same size and in better condition and cost $21,500 less than we paid at auction. Bottom Line….. I won’t go to any more auctions. If you still want to go to an auction you should try to find an agent to go with you and that’s probably going to be an agent that has never been to one. My advise….Forget Auctions ….and by-the-way….. get yourself a good experienced Realtor. It won’t cost you anything and “experience counts”