Michael Kuhbock

Phoenix Real Estate Auctions – Buyer Beware February 12, 2009

I recently found this blog and the author did a nice job on explaining the different types of residential real estate auctions in Phoenix.

The article can be found here, http://www.transworldnews.com/NewsStory.aspx?id=76055&cat=1

Enjoy,

Michael

Phoenix Real Estate Auctions – Buyer Beware

Home buyers and Investors in the Phoenix Real Estate Market Need to Be Thoroughly Prepared Before Bidding on Properties at Real Estate Auctions

Phoenix, Arizona 2/11/2009 03:13 PM GMT (TransWorldNews)

With the upcoming real estate auctions by US Home Auction, Zetabid and other real estate auctioneers, it is critical for home buyers and investors in the Phoenix real estate market to be armed with property information and prepared for how the auction process works. That’s not to say that deals can’t be had at the real estate auctions because they can for the savvy buyer. But real estate auctions can be both exhilarating, frustrating, and costly for the uneducated buyer. In addition, a buyer’s focus only on auctions to purchase a property can blind them to opportunities for properties on the open market.

The Types of Auctions

It’s important to understand that the Phoenix foreclosed home auctions are just one type of “auction” the Phoenix real estate market sees. Here are a few types to help understand the differences between auctions and the nature of the foreclosed home auctions put on by companies like US Home Auction, Zetabid, and others.

Trustee’s Sale

The Trustee’s Sale represents the true foreclosure auction as this is the legal process by which the primary lienholder (who is owed on the property and pursuing retribution) is foreclosing on the home and will take permanent and legal possession of the property. At the judicial foreclosure or Trustee’s Sale (this is more likely to be the chosen process), other parties have the opportunity to bid on the property but in many instances, the primary lienholder (lender) is the party to take final possession of the home.

Investors and home buyers who want to take advantage of the fact that properties can be obtained at a substantial discount to anything on the market will need to be prepared to pay with cash. As a result, most home buyers are not able to take advantage of these types of auctions. Note: Some investors are purchasing these properties at the Trustee’s Sale, putting a small amount of money into reconditioning the property for resale, and then putting the properties back on the open market and selling at a substantial profit – this isn’t an approach for every investor though.

The “Marketing Auction”

For lack of any better term here, “Marketing Auctions” are where an auction company is tries to auction properties that are currently on the open market for sale through a Realtor by getting home sellers to sign up. Home sellers who have their properties auctioned can cost the home seller anywhere from $1,000 to $3,000 with no guarantee of successful close. In this type of auction, the properties are likely not distressed in terms of foreclosure or short sale. In effect, this type of auction is an expensive marketing tool to raise awareness and potentially find a buyer for a home.

Phoenix Bank Owned or Foreclosed Home Auction

This is the most visible auction type as tremendous amounts of money is being spent on marketing this type of auction here within the Phoenix real estate market. Particulary, US Home Auction or REDC and Zetabid are companies facilitating these auctions. What is different is that the companies are contracting out with the lenders and banks that have a significant number of property assets that they have acquired through foreclosure and want to liquidate as quickly as possible.

Some Items to be Aware of with the Upcoming Phoenix Real Estate Auction by REDC or US Home Auction

1. There is a “reserve price” for the properties. In other words, even though the starting bid price might be $20,000 on a $70,000 (list price) property and your $25,000 bid is the winning bid, if your bid didn’t meet the reserve price of $55,000, you likely don’t get the property unless the Seller agrees anywayt and the property may be put out for bid again. Unfortunately, the reserve price is not disclosed to the public so there is no way of knowing what the real minimum price might be.
2. The sale is subject to approval by the seller. If the seller is not satisfied with your winning bid, the seller can simply decline the sale.
3. US Home Auction or REDC charges a “Buyer’s Premium” of 5%. So, if your bid is the winning bid at $200,000, you can expect to pay US Home Auction an additional $10,000 which is added to the sale price. Make sure to factor this in to your calculations.
4. You are required to bring a $5,000 cashier’s check to the auction in order to be authorized to bid on properties.
5. When buying a property, you will be required to provide 5% of the total sale price (your high bid price + the 5% Buyer’s Premium). The initial $5,000 cashier’s check can be supplemented by a personal check. All of this is due upon completion of a signed purchase agreement by both parties. Once the deal is final, you likely don’t get this back should you somehow back out of the transaction. However, if the property is currently occupied, the contract does allow for a 7 day inspection period within which the buyer does have an opportunity to cancel the agreement at no penalty.
6. IMPORTANT: The Auctioneer can place bids on the behalf of the Seller. This may be done to ensure a property does meet the reserve price. Whether this will happen during this auction or not is difficult to know but something to be aware of when watching the proceedings. I did not see an FAQ addressing this question on their main site. Here is the clause at USHomeAuction.com which I only found by Googling for Terms and Conditions. “The Auctioneer may open bidding on any Property by placing a bid on behalf of the Seller. The Auctioneer 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.”
7. You will be required to close no later than 21 days after the auction unless otherwise extended.
8. Make sure to read REDC’s Terms and Conditions thoroughly. Google “REDC terms and conditions” to see this information for US Home Auction.

Some Items to be Aware of with the Upcoming Phoenix Real Estate Auction by Zetabid

1. There is a “reserve price” for the properties. In other words, even though the starting bid price might be $20,000 on a $70,000 (list price) property and your $25,000 bid is the winning bid, if your bid didn’t meet the reserve price of $55,000, you likely don’t get the property unless the Seller agrees anywayt and the property may be put out for bid again. Unfortunately, the reserve price is not disclosed to the public so there is no way of knowing what the real minimum price might be.
2. The sale is subject to approval by the seller. If the seller is not satisfied with your winning bid, the seller can simply decline the sale.
3. Zetabid charges a “Buyer’s Premium” of 5%. So, if your bid is the winning bid at $200,000, you can expect to pay Zetabid an additional $10,000 which is added to the sale price. Make sure to factor this in to your calculations.
4. You are required to bring a $5,000 cashier’s check to the auction in order to be authorized to bid on properties.
5. When buying a property, you will be required to provide 5% of the total sale price (your high bid price + the 5% Buyer’s Premium). The initial $5,000 cashier’s check can be supplemented by a personal check. All of this is due upon completion of a signed purchase agreement by both parties. Once the deal is final, you likley don’t get this back should you somehow back out of the transaction. However, if the property is currently occupied, the contract does allow for a 7 day inspection period within which the buyer does have an opportunity to cancel the agreement at no penalty.
6. IMPORTANT: The Auctioneer can place bids on the behalf of the Seller. This may be done to ensure a property does meet the reserve price. Whether this will happen during this auction or not is difficult to know but something to be aware of when watching the proceedings. Buried in Zetabid’s Terms & Conditions is this one sentence comment. I did not see an FAQ addressing this question on their main site. “The Auctioneer reserves the right to place bids on behalf of the Seller.”
7. You will be required to close no later than 30 days after the auction unless otherwise extended.
8. Make sure to read Zetabid’s Terms & Conditions thoroughly. You can find these on the individual home listing pages on their website.

Critical Tips

* If you are seriously looking at buying a property through the foreclosed home auctions and have not had a Realtor search and show you other bank owned properties on the open market, you are making a mistake in excluding them from consideration. The auctions are not the only potential source for great deals and there are simply great bargains out there already listed for sale. To exclude these from consideration may mean that you are ignoring opportunities that are even more compelling. Be diligent and research all your home purchase options.
* Visit the properties you are interested in before the auction and have qualified professionals with you to inspect the property for issues. This would include a contractor for any repair and remodeling work you would have done.
* Conduct thorough analysis of comparable properties to ascertain the possible value for the homes you are interested in. A Realtor can help you do this.
* Come to the auction prepared with your estimates as to what you want to pay for a foreclosed home. If you haven’t done this, don’t bid on the property.
* At the foreclosed home auction, if the bid price exceeds your estimates for what you want to pay for the property, walk away and let the property go. Be firm with your estimates regardless of what the crowds may be doing during the bidding process.
* Look online to see the bidding order or call ahead. You could be at the auction all day if you don’t know when the house you are interested in is to be auctioned. Save yourself the hassle by checking ahead.
* On auction day, go a little earlier than the scheduled time for your particular property of interest in order to have time to sit down and watch how the process works.
* Finally, if you are at all unsure about your buying a home through the auction, then don’t follow through. Whether it is a resale property on the open market, a new build, or an auctioned property, do not purchase a home if you feel you may have buyer remorse. Be confident that you are getting the right property at the right value based on your needs and objectives.

Summary

Buyers considering purchasing personal or investment homes at a foreclosed home auction in the Phoenix and Valley real estate market need to understand that the auctions (except the Trustee’s Sale) really represent a distribution method for the lenders to liquidate properties. There very well may be deals to be had at these auctions but the buyer needs to be fully aware of the value of a property or properties that he or she is going to bid on. As well, the buyer should be aware of what other opportunities exist for deals outside of the auction process. Only with all of this information and awareness can the home buyer really ascertain the value of a given home at the home auction and what they should pay for it.

About David Lorti
David Lorti is a professional Realtor for RE/MAX Elite in the Phoenix Real Estate market. He holds a MBA and Certified Negotiation Expert designation and his insights have been quoted in numerous news outlets. His website, LortiHomesArizona.com, and blog, LortiHomesBlog.com, offer additional market insights on Phoenix Arizona Homes. Visit his site for an even more detailed review of Phoenix foreclosed home auctions.

david@lortihomesarizona.com
http://www.lortihomesblog.com