What they DON’T tell you about Property auctions!

My husband and I recently bought two properties on auction run by REDC (http://www.auction.com/) and it was quite an eye-opener, let me tell you! I’d like to walk you through the various steps and point out the pitfalls and traps,  so that YOU don’t fall victim at this type of sale.

The project started a few weeks prior to the listed auction date and when my husband told me of his wish to purchase property this way,  I had to warn him that property auctions are NOT what they used to be – he disagreed.  “Remember in the old days”,  I told him, “when we could buy a house on the steps of the Court House for $500?  NO MORE…  those days are gone!  The lender (or bank) wants as much for the property as they can get!”

Let’s start at the beginning:
Most times,  before an ‘upside-down’ property goes back to the bank,  every attempt has been made to sell it on the open market.  More often than not,  the property doesn’t sell and goes to foreclosure.  When this happens,  an agent is called upon to perform a BPO, or Broker Price Opinion – in other words,  to price the house for market, based on comparables in the area AT THIS TIME.

Despite it being a foreclosure, the list price is much the same as any other house for sale – perhaps 10% lower in price for a fast sale.

The first job that the foreclosure agent must do, is to perform a ‘trash-out’ (to remove anything left behind by the foreclosed owner and if the house has already been occupied by squatters, all their mess, too), re-key the house and secure it, take care of necessary repairs (those that might pose a hazard), turn on utilities, make the yard inviting and plan the first Open House.  This has to be done within 72 hours.

If the house does not sell in the alotted time, the lender or bank might enlist an auction company to sell it en masse with others that also did not sell.  By this stage,  the house may have been on the market for a year or eighteen months, because believe me,  the lenders have PILES of foreclosures and short sales to process and it can be many months before they get to look at offers that have come in.  By that stage,  the buyers may even have ‘walked’, having either grown tired of the waiting process or found another property. Understand that during this time,  the property value dropped, so it is no longer worth, what it was listed for as a foreclosure!

So,  here we are…  we have received the list of properties to be auctioned in a group of cities and we can see a picture of the property (one picture),  the reserve price (in our case $500) and the ‘value’ of the property, according to REDC (what they term “previous sold price”).  Most of what they have said up to now is true, but the reader interprets it in a slightly different way. You’ll see what I mean as we continue, as the auction company preys on the psychology of the buyer and the assumptions that the buyer makes in absorbing the information given.

I ran a search for the properties that interested my husband on the MLS, using a search program that is only available to REALTORS(R), and which gives a lot of in-depth information, such as plumbing (copper/galvanized), previous sale prices, loan information, property tax, etc etc etc.

My husband attended the Open House (and you’re only given one day to preview), but like so many of the auction properties,  there was no-one in attendance and the property was locked. In this case,  one has to resort to ‘previewing’ the property through the windows, so basically,  you are expected to buy the property ‘sight unseen’.

One property that we were interested in, was last listed for $65,000. Now bear in mind that the property market had DROPPED since it was listed and remained in foreclosure for many months. Those who attend the auction don’t take  this into consideration!  What they are told is that the property was previously sold for $250,000,  which is true…..  but it was sold for that price at the height of the market in 2006!  The bidders read this as the property being WORTH $250,000 at the LAST LIST PRICE at TODAY’S market value! The auction company deliberately trades on the assumptions made by the bidder according to the clever verbage that they use!

 There is a vast difference between the two prices and consequently bidding is fast and furious.

Another trick that the auctioneers employ, is to start the bidding at the reserve price of $500 (or whatever is set by the lender) and where normally,  they increase by $2,500 at a time, if you listen carefully (remember how fast the talk?), they are going up by $10,000 or $20,000 at a time.  This very quickly gets the property to the price that it was previously listed as a foreclosure.  When the bidding slows down,  the auctioneer stops and reminds the audience,  how someone ‘actually paid $250,000 for this property’ and this starts the frenzy again!

Before you know it,  the property has ‘sold’ for $129,000!  Hmmmm….  it was listed as a foreclosure at $65,000 and sold on auction at $129,000!  And that buyer walks away, thinking that he got a ‘deal’!

On that particular property, we had a personal ceiling of $40,000 and were outbid, but the winning bidder went to sign the documents and the lender TURNED HIM DOWN at $129,000 because he didn’t qualify!

Before long,  the property returned to the active screen and the bidding started again at the ‘reserve’ price. Once again we bid to slightly above our ceiling at $45,000 and were outbid at $60,000!  Once again,  the winning bidder was TURNED DOWN by the lender because he didn’t qualify!

We ended up winning the bid on two other properties and went to sign the documents, at which time we asked why the other property hadn’t been returned to the active screen.  We were told that we could make an offer.  Well,  naturally,  we offered $45,000!  The answer came back ‘DECLINED’.  Clearly, it wasn’t because we didn’t qualify because we were paying CASH, but rather that it was lower than the lender was prepared to accept!

So, here’s the recap:
Reserve price = $500
What is the point of having a reserve price, if the lender won’t accept bids that greatly exceed  that? The reserve price is bogus, in many cases!

‘Someone previously paid….’
This is NOT the last list price according to a more current market, but rather the HIGHEST price ever paid for the property and then, during a peak market!

‘Did not qualify’
This basically means that the lender wants more for the property, than the winning bidder offered. Again,  what is the point of a reserve price?

Now here’s something to be careful of:
If you are the winning bidder and you change your mind before going to sign documents,  your bid sheet is torn up in front of everyone and you are asked to leave the hall! This happened to a couple just behind us and they were extremely embarrassed.

Signing the documents:
First and foremost,  (Buyer Beware!) these are not documents which are CAR (California Association of REALTORS(R)) approved.  These are documents that are fashioned by the Escrow company for the auction company and therefore do not have all the safeguards built in to protect the buyer. THIS IS A BIG THING, folks!  Basically,  you buy at your own risk with NO recourse!

In addition, and to give you an example,  one of the clauses,  which you MUST sign in agreement if the sale is to go to Escrow, stipulates that you agree NOT to attempt to enter the property until Title is transferred to you.  This is a BIG ISSUE and stay tuned to tomorrow’s Blog, as I will really open your eyes as to how you can be ‘taken’ by both the auction company AND the lender, with this clause.

The bottom line on property auctions is that they DO NOT employ ‘truth in advertising’ as proven by their claim that the property was previously bought for an inflated price.  Here they trade on the psychology of the bidders assumption that is was the last list price.

Further,  auctioneers deliberately create a buying frenzy to encourage and push up the bidding.

Lastly, not only can a fair and reasonable winning bid be turned down,  but the documents are designed to protect the AUCTION company and the LENDER – NOT the buyer!

In conclusion, then:
Most auction buyers end up paying MORE for  property and it is therefore strongly advised that if you’d like to buy property at an auction NOT to go without your REALTOR(R), who has performed his/her investigations on the target property, first.

Feel free to post your questions at this Blog.

Althea Garner
Executive Real Estate
House Of Homes Online
(714) 264-3458

Search over 50,000 listings at my web site:

Women’s Council of REALTORS(R):
Treasurer – 2008 (Coastal-West)
Webmaster – 2009 (Long Beach)
Editor – 2009 (Long Beach)
Education Committee – 2009 (California State)

Orange County Association of REALTORS(R):
Education Vice Chair – 2009


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  1. […] Original post by ocdreamhometeam […]

  2. […] What they DON’T tell you about Property auctions! – ocdreamhometeam.wordpress.com 04/20/2009 My husband and I recently bought two properties on auction run by REDC ( http://www.auction.com/ ) and it was quite an eye-opener, let me tell you! I’d like to walk you through the various steps and point out the pitfalls and traps,  so that YOU don’t fall victim at this type of sale […]

  3. […] Bernardino, California, diego, estate … , real, realtor, realty, Riverside, sale, san What they DON’T tell you about Property auctions! – ocdreamhometeam.wordpress.com 04/20/2009 My husband and I recently bought two properties on […]

  4. […] The House Of Homes Online created an interesting post today on What they DONâ […]

  5. At a RedC auction, I “won” one of the 3 bedroom high-floor apts in Solaria in Riverdale, NY. After all the cheering and clapping was done, I paid the $80,000, and then was told the seller had 7 days to back out. (2 weeks actually with TG). My understanding before was that, yes, the seller could back out, but then I would be free to continue bidding or go somewhere else. Alas, not so, as he has my money. Hopefully I’ll get it back.

    I started wondering then, what “winning” at the auction actually meant. And if there was no contract yet, why did the seller need my $80,000. I’m already suffering buyers remorse and I haven’t even bought anything yet. I think the seller wants that 50% occupancy and will then take back the other bids and sell them at market.

    Based upon other apts in the neighborhood, I thought my “winning” bid was fair but not great. It was 25% over the published starting bid on the property. However, I took an enormous risk to get that price:
    1) I had never seen the apartment, the ones I wanted went above my price range;
    2) I signed a contract without the benefits of having either realtor or counsel;
    3) “TIME IS OF THE ESSENCE” clause is draconian, as it meant I forfeited my 10% if didn’t close in 30 days regardless of reason; BTW, the 7 business day delay in starting the closing, has already cost me almost 2 weeks against the original 30 day period, with no pushback allowed on the closing date;
    4) “7″ business day backout by seller, despite their having my 10%, with an escrow agent I never heard of. Should they go bankrupt my money would probably disappear. I can’t walk away because they have the money.
    5) RedC’s bank disclose interest rates, pre-payment penalties, monthly mortgage amount, or closing costs when they gave me the commitment prior to the auction. In addition, another bank I contacted, TD Bank, apparently will not lend against the apartments.

    The auction was a sham. Per the Riverdale press, Arc admitted to holding the auction to assess market value of the apartments. The only way they could do that was to make people believe they were buying something when in fact they were not. In addition, allowing the seller to have shill and straw bidders and setting undisclosed “reserves” is dishonest and deceptive. The whole concept of an auction is to allow parties independent of the seller to set the highest price. A fair auction would have had starting bids set by the seller and disclosed to the buyer. The seller refusing to honor the “deals” defeats the purpose of an auction.

    Next I have been contacted by the seller to see if I would settle for a “lower” floor.

    Finally 11 days after the auction, I was emailed by the closing company and told that my bid was accepted. Copies of the executed agreement signatory pages were also sent to me via email.

    At 10:30PM that same evening, RedC called me at home to tell me my “bid” was rejected. When I asked how to get my money back, they couldn’t tell me.

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