Chicago Auctions

[Kristy Wagner]

Hi there,

I am interested in pursuing auction properties in Chicago, but I understand the competition is steep.  Has anyone successfully purchased a property at auction and have any tips/advice?  I am trying to understand what to expect and how the process actually works.  The auction process is totally new to me, so no advice is too small...  Thank you!!

[Account Closed]

Bidding at Public Auctions to Profit in Real Estate

Here are some ideas when considering buying at auction:

Often times potential bidders will ask, "what's the opening bid?" not to worry about an opening bid, it’s not what the auction opens at that is important – it is the final bid that counts. Clue: The auctioneer usually suggests an opening price higher than they expect to get and will will come down asking for bids - $100,000 - now $95,000 anyone at $90,000.

Don't jump in to be the first bidder, wait to see what others are bidding, when the bidding slows down to almost a stop, that is when you may want to consider a bid (provided the high bid is within the price you are willing to pay) – Be careful – you don’t want to get auction fever – auctioneers love it when the bidding gets personal between two bidders.

At the auction, try to stand parallel to the auctioneer, this way you can see who is bidding and who is not ----- at times the auctioneer will create false bids in order to get the price up. This is not legal, unless it is disclosed that they are bidding for the owner.

Be ready to do business, since you are paying cash, have that cash ready; set up credit lines, borrow money and put it in account for your auction business, have partners (preferable family) with the cash ready to use.

Get your name on the mailing list of all of the auction companies in your area - you want to get early notices of up-coming auction sales – this will give you time to do your due diligence, to look at the property and to attempt to talk to the owners – there are times when you can purchase the property before the auction sale – this will eliminate your competition.

Talk to the auction associate in charge -- try to get some inside information about the sale, the seller, the situation; is it an owner ordered sale, bank auction, foreclosure, will they accept a pre-auction offer? Information is Power – get as much as you can.

Ask questions, what is the reserve (sometimes they will tell you, sometimes they won't, what is the balance of the mortgage, if you are the high bidder will you get the property free and clear of any liens – can you have immediately possession?

What is the first deposit, is there a second deposit?

Is there interest on the high bid from the day of sale to day of settlement (this could be very expensive if there is), there are times when due to a legal situation or other delays, the trustee can't settle the property immediately and it may take 6 months or longer, this means that you will be paying monthly interest on the unpaid balance until settlement. This accumulation of interest can be very expensive.

How soon will you have to settle, 5 days, 10 days, 30 days – what happens if you fail to settle? The property could be re-sold at your expense – if this happens and the second sale sells for less, you could be liable for the difference plus the expense of the auction….

Can you have possession immediately (you should get this, it will give you a head start on cleaning the property up and prepping for re-sale or rental.

Will the auction company disclose any known defects (septic system failure, well failure, termites, water problems...etc.

Ask for a copy of the auction contract and forms you will be required to sign and read every word......make sure you understand what you are committing to (many of those contracts have hidden clauses that will hurt you).

Will the auction company accept your business or personal check (try to get pre-approved to use your checks (most auction companies require certified funds, if that is a requirement, get a certified check made out to you).

Make sure you have good comparable sales data, you need to know what the value is and what you can sell it for immediately if you have to.

Understand the repair cost. Take your time when inspecting the property – look for defects – look for hidden or covered up defects – is there fresh paint, or new plywood covering something – be suspicious of everything.

You may want to consider selling the property (assignment) before settlement – so having possession is important.

Set your high bid price and don't go higher - remember auction fever – don’t get into a bidding war.

Check out your competition at the sale, most of these folks are professional buyers (predators) and will out bid you or give you a chance to out-bid yourself......be careful, try to get to know them (you will see them often at auction sales, they are really good at what they do. Ask for their business cards, learn about them. You will be better prepared the next time they bid against you. You may even want to have them as your mentor or consultant.

Check MLS to find any history of the property; this will give you some clues as to what price the auction company is looking for. Talk to the agents who had the property listed. Ask them questions, who is the seller, what was the problem, how long was it on the market, how can you reach the sellers, let the agent know that you'll pay them a fee if they help you buy the property before the auction.....this will also eliminate your competition – and that is a good thing.

Be pro-active, do your research, don't just show up....you need history of the property before you bid, do this and you will succeed, do not do it and you may over-pay.

Visit the property before the auction sale, try to find the owner, ask questions (sometimes you can stop the auction by making an offer to buy directly from the owner (always check the local laws about buying directly from owners in foreclosure, you would be safe by using an agent, called arm’s length agreement, you pay the agent for this service.

Talk to the neighbors, find out what's going on, the history of the property and the ownership, neighbor usually love to talk and will give you some great insights.

Is the house vacant, for how long, can you get inside to do an inspection?

Check the public records, what liens are on the property, what violations, back taxes, water bills etc.

If buying directly form the seller (using an agent), make sure you have a lien and title report to protect you from buying a property with unwanted liens or judgement s that will have to be paid before getting good title.

Other ideas for you that may help you understand the auction business better:

Contact auction companies (always talk to the principle of the company).

Do some research of that company; what do they primarily sell, stuff (assignments), antiques, coins, real estate, foreclosures etc.

attend their auction, get to know them

At my company we have auctioneer associates, their job is to run leads and to create leads that we can sell at auctions. They are on commission only and do very well.

When you talk to the owner of the auction company, let them know that you are actively involved in real estate and would they consider hiring you on a part time bases and pay you a commission for every transaction you bring them. This could be a great profit center for an investor.

Make sure you have something in writing as to the amount they will pay you.

Ask if you can become an auctioneer associate, ask if they will train you and if you can you can use their facilities to help get leads and to learn the business.

Use the Control and Roll system to increase your income.......that is --- control a property at a price that you feel you can sell for more, put it up for auction (while working for the auction company) and sell it for more, ( Example: your contract offer ----with special clauses and disclosures---is for $100,000, you book the property with your auction company and sell it at auction for $115,000, you make $15,000 equity plus 25% of the buyer’s premium commission paid to you form the auction company. This means you have a great opportunity to DOUBLE DIP your fees and equity. Do this a few times a month and you'll make a ton of money.

What if the property does not sell at auction? here are some ideas.....

If it is a Trustee sale, go immediately to the office of the trustee with your written offer to purchase the property.

Make sure your offer is all cash with no contingencies

Make a copy of your deposit to be attached to the contract offer

Let the bank know that a $5,000 deposit is being help by your lawyer or title company

With your offer attach a HUD-1 to show the bottom line the lender will receive (remember you are paying all settlement charges). Ask your friendly title company to create a HUD-1 for you.

With the offer attach pictures of all the ugly things about the property; the landscaping, broken windows, bad walk ways, bad fencing, green water in the pool, any nasty pictures of the interior, the estimate amount of renovations needed. It is your objective to get that building for as little as possible – to create equity – remember banks don’t care – you need to education them – help the bank to help you by showing all the negative items about the property – make it easy for them to accept your offer.

Write a cover letter stating what you will do if they accept your offer; secure the property, insure the house, pay all cash, take care maintenance problems immediately, protect and secure the house form squatters, have the electric turned on, notify the water department, notify the local police to keep an eye out for vandals...etc.

Since no one at the bank can make a decision as fast as you want, put a drop dead date in your offer. If this offer is not accepted or countered by January 1, this offer becomes null and void and all deposit help by the title company will be return.

Remember BANKS are NOT human.......they are machines.....they don't really care about you, but your money is the language they understand.

Send all your correspondence by certified mail, receipt requested. You need to create a paper trail.

You should also understand that banks usually do not have legal ownership of the property being sold at a trustee sale and that the final ratification is not completed until the sale is advertised and a judge signs the documents. This means, even after or before a sale at the auction, the door is still open to you to stop the auction with the cooperation of the seller.

I am always available to answer your questions.......... Good luck - have fun and make full disclosures all the time.