Auction Companies - are they safer?

Question

I've been researching foreclosure auction companies after attending several of my county foreclosure auctions. I am interested in having someone bid on my behalf. Mainly because there are many "investors" in my area bidding up the MLS and other prices too high for good deals at this time. So, I'm wondering if using a foreclosure auction company is a reasonable option. I'm also doing my research to see if the auction option can reasonably limit risk - does the auction company check title, liens, etc? How do these companies work? What's the benefit of using one?

Andy Mallos · Answer

Thank you for your reply, Tim. This makes sense. Doesn't look like I'm up for that - at least not yet.

I'm having difficulty finding properties to buy (trying to acquire rental properties), so I'm exploring all my options.

Account Closed · Answer

Using a bidding service is not any safer than bidding yourself at a foreclosure auction.  In my area, no bidding services offer any sort of title insurance or guarantees to quality of title prior to purchasing at auction.

Some services offer condensed title reports for your review, but they do not offer any guarantees.  The only real benefit they provide is the convenience of not having to sit at the auction every day.

I actually think that using a bidding service is more dangerous than bidding on your own.  As Andy Mallos mentioned, some bidders meet before the auctions and try to cut “backdoor” deals with each other.  When hiring a bidding service, you run the risk that the bidder will reveal your maximum bid to other buyers beforehand or not submit your bid at all.

If you plan to buy regularly at foreclosure auctions, you really need to learn how to perform title searches and bid on your own.  You can pay a title company a few hundred dollars to research title beforehand, but that cost will add up quickly if you are bidding on a regular basis.

All the information you need to perform a thorough title search is fairly easy to access online or at your county’s administrative offices.  It is just a matter of learning what to look for and how to search efficiently.

Andy Mallos · Answer

Maybe I need to clarify what I mean by "foreclosure auction" company - when I attended the county auction last week (for example) there were several RE brokers at the auction who were bidding on behalf of clients and the broker's company. There was not much competition at our county auction - bidders seemed to know others there and they talked prior to auction and traded properties (apparently, they try not to bid on other's properties. I learned this isn't always the case, but is most often the case). You can use an agent's company to bid for you (which includes tracking a property, title search, going to property and "trespassing" as they were saying beforehand to get as much info as possible, checking lien info, etc.

I'm reading that I need to do all the title checks, property checks, trespass inspection, etc. stuff myself (in addition to the "company" I'd pay to bid for me) whether I hire a company or not? These companies charge 3%. Anyone can raise their hand and offer another dollar (what they do at our auction). The value seems to be in the research beforehand. If the company cannot provide some significant help and security with the research, what good are they? - hence why I'm posting here. An example of one of these companies is Vestus.com . A local RE company called Strategy RE also attends the auctions and buys for their investors.

Dion DePaoli · Answer

This is going vary from company to company in regards to their level of due diligence.  We have looked at auction companies to liquidate some of our REO in the past and I don't recall them every checking title but they were open to purchasing BPO's or Drive By Appraisals to establish real property value.

I wouldn't say they limit your risk as a buyer.  In that sense your are more of a customer and the Seller is more of a client.  The benefit, if you can call it that, would probably be acute asset exposure for the Seller.  When the traveling companies come to town they spend money on marketing the event to bring in as many potential buyers as possible.  It is important to note, they are not interested in getting you a deal, they want to drive the price up so their commission grows with the price.

All that said, the auctions can be a place where you can find some deals but you have to work the auction just like any other market place.  Buyer Beware.