Question Details

John Goad, Real Estate Pro in Winston Salem, NC

Real Estate Auction "Scams", are they going on in other markets besides Las Vegas?

Asked by John Goad, Winston Salem, NC Tue Jan 15, 2008

There has been a trend developing in Las Vegas, NV of Real Estate auctions, that in my opinion are a "scam". What is presented to perspecitve buyers is that a property, or properties, are being auctioned off to the highest bidder. However this is not how it works. They do indeed conduct an auction, but once the highest bidder is established the bid is then being presented to the seller, or bank, as an offer. Many times the seller, or bank, is then refusing to sell the property for the highest bid amount. While understandable that the seller, or bank, may not want to sell for the highest bid, I find this practice of "auctioning to the higest bidder" to be not only be misleading, but deceptive & in my opinion unethical. Many times these auctions are being held by Realtors, is it just me or does this seem to be a violation of the Realtor code of ethics (as we are not supposed to mislead) and are other agents finding these sort of deceptive "auctions" taking place in your markets?

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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
Web Reference:
1 vote Thank Flag Link Tue Jan 15, 2008
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.
1 vote Thank Flag Link Tue Jan 15, 2008
There are a couple different types of auctions out there. They are all difficult for those that don't know how they work. Auctions can be great deals or some terrible deals. They are not for the inexperienced. If you are going to get the greatest deal in history on a home there are going to be risk. Auctions are not held by realtors. They may have the listing but the banks set the rules. As a realtor dealing with the auctions it's a pain and I'd prefer not too but it is what it is. The bank sets a price they want, good or bad and run an auction. There is a 5% fee to the auction site on top of the highest bid price. I have not seen a reserve price in my experience but the bids started really low and usually never got near the price the bank was looking for. If the price is too low they don't accept the bid or offer given to them. they will run another action down the road and try again. It's not ebay where the highest bid wins. It's an offer. We also had an open house the day before for anyone interested could see the property before bidding. It may not be the greatest system but it is what the banks agreed to work with and because they own the house they can do whatever they want to sell it. They wasn't any fraud or cheating. It's just not the normal way we do a transaction.
0 votes Thank Flag Link Tue Nov 10, 2015
It seems to me a reserve price should be established, recorded and witnessed before the auction starts. If at some time during bidding the reserve is met, it should be announced or revealed to the bidders. If at the end of active bidding the reserve figure should be revealed as not being met and the auction closed for that lot.
0 votes Thank Flag Link Tue Nov 10, 2015
I know what a legitemite auction is. But these mensioned are not lagit. I also have learned of ordinary real estate sales in which the Realtor refuses to sell the home for the price listed. Instead they wait for higher offers and sell to the highest (bid). Sounds like an auction to me. Completely UNETHICAL.
And that poor young couple can stay in there apartment until they learn to spend big.
Its all more of the same over hypeing the home values we saw before and failure in the making.
0 votes Thank Flag Link Sat Jun 13, 2015
It is absolutely infuriating! First, they have the Buyer's agent over the barrel, because ethically we MUST show our buyers properties of interest...but they are often only of interest because of the deceptively low "initial bid" price they put out there. Then, they offer the Buyer's agent a ridiculously low commission...which is a small fraction of the amount that they have extorted from the Buyer through their "buyer's premium" that they put on the final bid. That is worthy of additional comment...they have taken the commission off the shoulders of the Seller, and placed it squarely on the shoulders of the what appears to be a "really great price", is not really what it cost the Buyer, you have to add the 5% Buyers Premium to the final bid to see what the real price was. Then they add time at the end of the auction, so the bidder who thinks s/he is getting the "last bid" suddenly sees more time on the clock (most bidders are familiar with EBay style online bidding, so this is a shocker for them). And then...the final insult...they take the highest bidders and start a "best and final" round AFTER THE BIDDING IS FINISHED. The worst part, IMHO, is that one of the leading venues for this schlocky business format actually makes the bidder put up a sizeable ($2500) upfront deposit on their credit card and IF THE BIDDER DOES NOT AGREE TO THE FINAL SALES ADDENDUM PROVIDED BY THE AUCTION (which they have not even seen yet when they agree to it) THEN THE AUCTIONEER CAN KEEP THEIR DEPOSIT!!! Outrageous!! I cannot over-emphasize with my Buyers that this is a forum that should be avoided at all costs. Buyer Beware...
0 votes Thank Flag Link Tue Dec 16, 2014
this is how works ... the whole site is a scam
0 votes Thank Flag Link Tue Dec 16, 2014
Yes they are doing this in AZ as well. As long as there are proper disclosures this practice is legal but, not recommended by me or my broker. I would be careful doing this approach if I was a prospective seller and make sure that all disclosures are properly made and hire an auction company to do this. In my opinion agents engaging in these auctions are more than likely operating outside their area of expertise.
0 votes Thank Flag Link Thu Aug 4, 2011
The scam I am familiar with is the real estate scam. It involves getting normal people everywhere to buy badly overpriced homes from the 2006 tulip I mean realty mania. Huge numbers of people are in on it so it does not appear to be a typical small operator scam. One of the telltale signs that this is a scam is the offering of really low mortgage interest rates so you do not see that badly bloated price tag.

Be careful about the realty scam because real estate has only begun to correct as there are no longer enuff suckers to keep prices from collapsing.
0 votes Thank Flag Link Thu Aug 4, 2011
i was called and told the reserve price was not reached but was close enough that the seller would accept. i did all that was asked and send $47??.??mplus sto the closing group in Pa. the is in Ca. 3 weeks later, with no cover letter and having made several calls to the auction idiots, a check from Pa closing came in the mail. 10 days later i got an email that i was to contact closing and request my money. i feel lucky i got my money back. such confusion and eneptness left a bitter taste. i am investor and always looking for houses, just never with again. BE WARE.
0 votes Thank Flag Link Thu Aug 4, 2011
We have a beautiful historic "fixer upper" for sale on the MS Gulf Coast, we are willing to sell at tax appraisal $300,000.
Would you be interested?
Flag Thu Jun 21, 2012
This is going on at the "" in Michigan. is conducting unethacal auctions for the properties that have already been sold by regular channells and charging winning bidders EMD but take monthes to refund after they cannot deliver the seller. Meanwhile they hold the EMD in their account for months.
0 votes Thank Flag Link Thu Dec 9, 2010
These auctions are a charade. If there is a reserve on a property start the bidding there. My time is valuable and I don't like wasting it. If they can't tell me the reserve amount, I am not interested. I refuse to play their game. I am looking to buy properties not play games.
0 votes Thank Flag Link Mon Nov 8, 2010

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.
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.
0 votes Thank Flag Link Fri Mar 6, 2009
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.
0 votes Thank Flag Link Wed Jan 14, 2009
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!!!!
0 votes Thank Flag Link Mon Jan 12, 2009
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.
0 votes Thank Flag Link Sat Aug 30, 2008
Hi Frank,
I currently have a client in the process of purchasing a home through hudson and marshall and I am becoming wary of a few things going on. Were the buyers in this case refunded their deposit?
Flag Fri Jan 30, 2015
Hi Fra
Flag Fri Jan 30, 2015
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.)
0 votes Thank Flag Link Tue Jun 10, 2008
Don Tepper, Real Estate Pro in Burke, VA
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.
0 votes Thank Flag Link Tue Jun 10, 2008
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.
Web Reference:
0 votes Thank Flag Link Tue Jan 15, 2008
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