With the foreclosure inventory starting to open up and more REOâ€™s hitting the market, a sale type that is gaining in popularity is anÂ REO Auction.
An REO Auction is an alternative sales strategy that banks and asset managers are employing with more regularity.Â At anÂ REO Auction, a property (or pool of properties) is literally auctioned off via open outcry with a high bidder awarded the right to then purchase the property.Â From the perspective of the seller, it is their hope that by gathering a crowd of interested buyers together, demand will be driven up and the sales price will escalate.Â In my experience, this strategy has mixed results for the seller.Â Iâ€™ve also seen Buyers get carried away in the heat of the moment and wind up regretting a purchase at an REO Auction.
On the day of the REO Auction, the seller will employ an Auctioneer who will serve as the conduit for encouraging and managing bids.Â The auction may take place right at the property site (as was the case with one of my recent REOâ€™s inBloomfield, NJ 07003), or it may occur in a larger venue, such as a hotel ballroom, conference room or other meeting center if a pool of properties are being auctioned.Â The auctioneer may start at a high price, perhaps even higher than the indicated offer price and bid downwards, or can start from zero and bid up.Â It all depends on the auctioneer.
Most REO Auctions have a reserve price, meaning that while there is always a high bidder (assuming there is at least one bid), the seller reserves the right to not accept the high bid if it does not meet their internally agreed upon minimum sales price.Â Even if the high bidder meets the reserve price, theÂ sale is subject to ratification by the seller and their management.Â The auctioneer is typically paid a premium on top of the sales price, and it is traditionally about 5% and paid by the buyer.Â
Most REO Auctions are for cash bidders only, and are sold as-is, where-is.Â It is generally incumbent on the bidder to visit the property prior to the auction â€“ whether by open house or an appointment with an agent â€“ prior to bidding on the property.Â Caveat Emptor rules the day.Â The bidder will need to produce a pre-determined certified deposit on the day of the auction, and then augment that deposit with additional funds thereafter.
If you have interest in a property that is going toÂ REO Auction, it is a good idea toÂ speak with an experienced REO agentÂ before attending to understand the inherent risks with purchasing a property at an REO Auction.Â