Do you really stand a chance at a bank-ordered auction?

I ran across this article the other day on Business Insider. Titled “Here’s Why Homebuyers Don’t Stand a Chance at Foreclosure Auctions”, it naturally caught my attention, especially since we have a bank-ordered auction coming up in Florida next month. 

The article basically explains that, at a foreclosure auction in Detroit, hundreds of end-user bidders were frustrated because a millionaire swept up all 650 properties at an auction. Understandably frustrating, no doubt. It goes on to say that real estate investors “are enemy No. 1 to potential homebuyers these days.” While I do agree with certain parts of the article — investors are always bidders at our bank auctions — there are several points I disagree with and felt like I should respond to. To “debunk” the myths, if you will. 

First of all, the article quotes a real estate expert named Brendon DeSimone, who says: “I always tell buyers they’re not gonna play with these boys. It’s the big leagues. They’re men with cashier’s checks and they’re fighting for these homes. They treat them like stock, like candy.”

I don’t know about how this auction in Detroit was conducted, but at our auctions and the auctions of several other companies I know of, the playing field is leveled, rather than tipped toward the investor. Each bidder, whether an investor or an end-user, is required to have a cashier’s check and pay a certain percentage down on auction day. That doesn’t mean it’s hard to bid or compete. It means that you have to organize your financing ahead of time, just part of the due diligence process. Once that financing is in place, you’re qualified to take on the “big league” players.

DeSimone goes on to say that you can’t compete unless you have cash. This is completely false. If buyers do their due diligence and find a home they love, they should still have the time to get financing in order. Whether financed through a bank or paying cash, when you’re the winning bidder on auction day, the bank will gladly take your money. 

That’s the great thing about an auction, actually. In a traditional real estate transaction, the bank has the opportunity to review each offer before it responds, and perhaps it will be more likely to choose someone who can pay cash. At an auction, once you’re registered, the bank doesn’t know if you’re an investor or end user, and, as long as you follow through to closing, they don’t care. 

If anything, I’d say that the end users are more likely to win the property at an auction. Investors have a certain budget they have to stay within to turn a worthwhile profit. As an end user, if you’ve found the home you love, you don’t have to worry about turning a profit. You’re looking for the best place to call home, so you may actually be able to pay more for the property than the “big league” investor. 

What do you think? Have you ever bought a bank-owned property? Was it for end use or an investment property, and how did it work out for you?

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~ by Craig King on August 28, 2012.

One Response to “Do you really stand a chance at a bank-ordered auction?”

  1. Craig,

    Excellent points to encourage the end user bidders to participate in not only distressed bank-owned auctions, but any private seller offer property through the auction format.

    Erich Gabriel
    Billings, Montana
    Broker

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