Auction Websites Bid Structuring and How to Win

[Aaron Cunningham]

Just a brief little "beef" with these auction websites.

I have been using certain websites that auction bank REO properties and short sale properties to purchase homes over the last several years (3-5). These websites shall remain nameless. A while back I was bidding on some properties online and would notice that once the auctions were about to close the bids would be stepped up. When this happened I thought that there must have been another bidder that was willing to pay more for the property that I was at that point, so I would either elect to no longer bid, or I would elect to continue bidding. There were several occasions when I would just let the property go to another "bidder", and the auction would officially close. On several occasions I received calls after the auction had closed and the home had sold to another bidder and the auction company would say something like,"the other bidder has backed out and you can submit your bid to the bank". After this happened several times I began to get the idea that maybe there in fact was no other "bidder" and that perhaps the auction house was raising the bids in an attempt to get a higher number for the seller, I then proceeded to ask the auction rep if this possibly could be the case, and he informed me that YES in fact they do reserve the right to "bid on behalf of their client, the bank".

There it is, that's my beef!

For some reason I don't feel like the auction house should have the ability to run the bids up on these properties. I feel like it's misleading the bidders and it makes things more difficult for the investor. With that said, I still use these auction houses to buy multiple properties on a monthly basis, but I have learned that I should just place a bid that I think is close to what the property should sell for and then wait for the phone to ring.

(seattle, spokane, boise, portland, hard money, auction properties)

[Brian Burke]

I get those same "high bidder backed out" calls, and what you described is exactly what they are doing. Most of the time after they run the bid up they just put it back up for auction again at the next auction. This time they know exactly how much each investor is willing to pay because they have seen the bidding history from the previous time it was up for auction, and they can just bid them up to that level. It's all a game to get the highest price for the property under the illusion of an "auction". That's the game, we're just the players.