Buying Properties at Auction

[Brian Kittner]

Generally speaking when buying foreclosure properties at auction, can they sell for less than the outstanding debt balance? I would imagine not, but hoping someone with experience buying at auction could weigh in.

Thanks!

[Randall Alan]

Quote from @Brian Kittner:

Generally speaking when buying foreclosure properties at auction, can they sell for less than the outstanding debt balance? I would imagine not, but hoping someone with experience buying at auction could weigh in.

Thanks!

@Brian Kittner

The seller (usually the lender) can set whatever price they want to. I think a lot depends on whether the property is obviously upside down. I will tell you they usually don't sell it for less than what they are owed (including fees, legal expenses, upkeep, etc). They know their next move is to sell it on the MLS if it doesn't sell at the auction. The MLS will involve paying realtors which will cost them more money, etc. So I think it comes down to the value of the property. One would usually expect that in todays market that it is likely worth more than what is owed (taking into account a down payment, plus recent appreciation). In those cases, it would make more sense to take it to the MLS if they couldn't get all their money back through the auction. But if the property is upside down for some reason, it might make sense to set a lower sell price to ditch it and not have to pay a realtors after the fact.

I have been in a situation where the lender in second position bid on the property, because they were going to be completely wiped out if the foreclosure went through. So in order to protect their 2nd lien, they bought the property (ie. outbid us). That way they could take it to the MLS and sell it and recover their investment. There are all sorts of ways things go down at the auction!

In our area, the seller has the option to hide the minimum bid as well.  Another interesting wrinkle!

All the best!

Randy