REAL ESTATE AUCTIONS ARE FOR SUCKERS - DON'T ATTEND THEM!

As I post this reply another real estate "auction" is coming to Southern California and the advertisements, (costing tens of thousands of dollars) abound on TV and in the Newspapers. Many of these homes are the loser properties, the ones they could not sell to folks for a multitude of reasons, many of them hidden reasons that you, the Buyer, will not find out about until after you have given the Auction house your nonrefundable earnest money! Many of them are even "Teardowns" (structures so messed up it is cheaper to tear them down than to try to repair all their defects), and many others have been "red-tagged" (illegal to inhabit) by the local Building Departments.

You cannot win, so do not even bother to play. Ignore their hype and read the "Terms and Conditions".

In the interest of public education here are a few facts:
All Properties have a Reserve Price, meaning the Seller of each Property has established an unpublished, minimum selling price. The starting bid is not the Reserve Price.

My comment: Why attend an auction where you don't know the minimum price? Reserve auctions are OK, assuming the reserve is disclosed. Absolute (i.e. no reserve) auctions are best. With an unpublished reserve, you are shooting in the dark.

the Auctioneer may open bidding on any Property by placing a bid on behalf of the Seller and may further bid on behalf of the Seller, up to the amount of the Reserve Price, by placing successive or consecutive bids for a Property, or by placing bids in response to other bidders. Yes, you may think you are bidding against other legitimate buyers when in fact, some, or even all, of the other bidders in the audience are actually SHILLS! Yes! They are employees of the Auction House who are pretending to be Buyers so as generate excitement and to run up the price of the property to regular, and often even above, Market Value.

My comment: The auction house bids against you? So not only are you up against other bidders, but you are bidding against an auction house, up to a price you don't know.

"Winning Bidder’s purchase is subject to, and contingent upon, the REO management of Seller approving the purchase, which shall be given or denied at their sole and absolute discretion within fifteen (15) business days"

My comment:
So even if you manage to outbid everyone else, and the auction house, the bank has 2 weeks to reject your offer.

At some of these phony auctions you even have to pay the commission, rather than the seller paying it, up to 5%.

Remember: The Auctioneer is not acting as an agent for any Bidder in any capacity, and is acting exclusively as the Seller’s agent.
At US Home Auctions they state that "The total purchase price will include a buyer’s premium equal to five percent (5%) of the winning bid amount"
"The buyer's premium is the fee the Auctioneer charges the bidders to bring the Property"

My comment:
5% is a steep fee to pay as a buyer. Normally a the seller takes the hit for the 6% agent commission.

Folks, there is no way you'll get a bargain here. Hold out for absolute auctions. There is a tidal wave of foreclosures about to hit the market, and you'll get a much better deal.
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In case you still have no common sense and still plan to attend an "Auction" --Ok.. so you found a property you want to bid on, you did your home inspection, well scratch that, you went and take a look at the property, It’s not going to be anything close to a home inspection, none the less you like the property, you did all the pre-auction prep work etc. and came up with a max price and want to take a shot at bidding on it. Now what, well.. make sure your prep work included READING the CONTRACT carefully and understand that it’s 100% ONE SIDED in favor of the seller. In the event you’re the unlucky one to win the bid, yes that’s right, I did say UNLUCKY, because the nightmare may just be starting. ….READ THE CONTRACT..READ THE CONTRACT….and other docs you’ll have to sign..all of the over 100+ pages.

While I don't know anything about Nevada auctions, I am sure there are are some unethical practices that go on in every state. I have been looking into the auction processes for about one year now. If you are looking into a forclosure, I would go directly to my bank to see what they have ready to market. If you are looking for even a better deal, You might look into county tax forclosures, but be alert. I live in Wa. State, and it is a "free and Clear" State. Some States are a "Tax Lien" sale, or a Tax Certificate sale, meaning you may never actually get the property. You will get you're money returned plus interest. Quite a number of people do this as a means of extra income, but you have to have some capitol. The most reliable "No Reserve" auctions, are through a site called bid4assets. They conduct auctions for counties all over the country, but you will find that most of them are in Michigan and Ohio.
Dave Johnston
Auction Dabbler
Yakima, Wa.

Hi There!

I am a licensed Realtor in Scottsdale, AZ (14 years experience) and while this exact type of thing is not common, what I do find is that these huge public auctions ( US Home Auctions) are also a scam. A client of mine let me in on some auction secrets. First off, the banks plant "shields" in the audience to jack up the price of the home, and they all have "secret reserve prices". These prices are the prices the banks need to clear on the home, to sell it. The shields bid up the price to at least the "secret reserve price" and then the buyer ends up paying an inflated price anyway. There is no difference between making an offer the "old fashioned way", through a Realtor on a bank owned property or going to an auction. The bank simply will not sell below a certain price. At the auction, the buyers usually end up paying much more than what they would have paid on a standard offer. Talk about a scam!!!!

The practice is definately a scam. If a reserve price was established first, then the bidder would know where they stood in the process. Recently this came up at a Hudson and Marshall auction. The highest bidder on a property was presented with a counter offer by the bank, even though before the auction it was clearly presented that all properties were sold without contingencies as to financing and would not re-appear for any reason that day. The bank used the auction process as a way to mine for prospects on the property. The bidder had actually only purchased the right to negotiate for the property with their $5,000 deposit, a process which would have been more ethically handled in an REO sale. To their credit Hudson and Marshall also deplored the actions of this bank (I believe US National Bank) and other banks who engaqge in this deceptive process. They explained that they can only function under the legalities already in place, which seems reasonable. All this would be solved by establishing a reserve number on the properties in question. In sum, the process is unethical and deliberately misleading as practiced today.

The same auction processes are being offered in Washington, D.C. And to correct Scott, these aren't reserve auctions. A reserve is set in advance. It may be either public or secret, but there's a price that the seller and the auctioner have agreed is the minimum acceptable bid. Once bidding exceeds that amount, the property really, truly is sold.

What the questioner is asking about is something entirely different. The auction is conducted. A number is arrived at. At that point, the number is presented to the seller, who decides whether to accept or reject it.

I'm not sure I'd call it a scam. But I do think it's dishonest and deceptive unless those rules are clearly presented to the bidders prior to bidding. (And really prior to the bidders taking the time to go to the auction to bid.)

I don't think it's a scam at all. Even when you sell something on ebay there is a reserve price set. The owner of the home should have the right to refuse a bid if it is too low. We are selling our house using this method. If the auctions high bid is only half of what we set as a low reserve why should we be forced to sell? I don't see it as a scam in any way shape or form. It's an auction with a reserve , the reserve price is not public.......if the buyer meets the reserve price pre set then there is no discussion, if the reserve price is not met, then we will be notified of the highest bid and be able to consider our options. We want to sell our house but do not NEED to sell our house. We are not going to let someone just STEAL it. If there was no reserve and the auction ends and the highest bidder bids one dollar, should the owner have to sell it for that price? Be realistic.

Interesting scam... I haven't seen Realtors advertising the auctions but I have seen some FSBOs do it in the Dallas area. I wonder if it's going to become a trend.

Patrick,

Even a reserve price auction would be understandable if buyers were made aware before hand that there is a reserve price and if the highest bid does not reach this reserve price than the property would not be sold. One of my buyer's agents had a client that insisted upon attending one of these auctions, nothing was ever explained to the buyer, or the buyers agent ,of a "reserve price" or that the highest bidder may still not get the property UNTIL her buyer had won the bid and the auction was over. The agent conducting the auction (who was a Realtor) told her that her highest bid would be presented to the bank as an offer. The buyer immediately told the Realtor 'this is a crock of &%$* and forget to it.

I have been conducting Short Sales for years, and as you stated most of them go back to the bank. There is a two fold reason for this #1 banks are often times uncooperative and #2 many agents who do not know how to handle these types of transaction are "attempting" to do so with little or no training in these types of sales. When conducting Short Sales the agent must be on top of the bank on almost a daily basis. If the agent simply sends the offers off to the bank and waits for a response, they could be waiting until (pardon the expresion) the second coming of Christ. Banks are notorious for loosing short sale offers, claiming they never got them, and when they do respond many times they are looking to get full market value. An agent who is experienced in short sales knows they need to explain to the buyers agents that persented the offer (or offers) that the bank is trying to recoup as much of their losses as possible and that the buyers agent can still come back with a Counter Offer. My advice to agents that are 'trying their hand at short sales" is not to do it unless you have a very experienced mentor or fellow agent that his helping you through our first 4-5 short sales. Rembember that your seller is counting on you to help save them from foreclosure, and if you don't know what you are doing, you could be doing your seller a great injustice.

As far as Trustee Auctions, it sounds like Phoenix is very similar to Vegas. I have only been to a couple Trustee Auctins and 95% of the time each house never receives a single bid, and just as you stated most of the homes are going back to the bank.

Thanks Michael and Patrick for your posts.

John Goad, Jr. of The Goad Team
Century 21 Infinity

I've seen some of these appear in our Tucson market as well. Many organized property auctions also operate the same way and it certainly is misleading at first glance.