Buying a house prior to Auction?! How have you or would you do it

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Buying a house prior to Auction?! How have you or would you do it

Jeremy Horton
Rental Property Investor · Somewhere over the Rainbow · Member since 2021 · 1k+ posts · 1k+ votes

Recently I've been trying to get more leads into the funnel and ideally close more deals faster. I'm having much better success with off-market as opposed to the MLS - my most recent strategy and a big one for 2023 is going to be buying (or attempting) at the sheriffs auction.

I will also have my RE license in January so I can tour my own houses, make my own offers etc. Probably going to start with 3 or so offers a week until I can get 5-10. 

This leads me to the sheriffs auction...the problem I've had is there have been a few good houses go up to be auctioned, then a week or so prior to the in person auction the house will come off the auction site and show as "pending" on zillow. So someone is picking up some of these prior to auction (I guess on some of them the deal falls though because they will end up back for auction). There will also be some houses that pop up as "pending" on zillow for around 60% of the ARV, but the house is already pending before it's listed (it arrives on the site as "pending". There's something going on - I'm just not sure exactly what.

So to the question...Let's say a house pops up on the auction site - it's a good one. To get an opportunity prior to auction - is it as simple as knocking on the door and getting an offer agreement signed? I'm sure you would have to offer more than the mortgage balance or you're looking at a short sale? What should the relevant contingencies be - inspection and a clean title is what I'm thinking. These would be cash deals and I would rehab the house and ideally turn it into a LTR or flip. 

I know there are some good strategies out there - I am just a little unclear on what to do after knocking on someone's door whose house is going to be auctioned in the next 2 weeks or so...

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John Slater
Real Estate Coach · Riverside County, CA · Member since 2017 · 238 posts · 157 votes
3y
Quote from @Jeremy Horton:
Quote from @John Slater:

@Jeremy H.

Consider getting to them before auction is posted. They are 90 days in pre foreclosure before sale date is being posted and for me that’s the time to get out and door knock to see what’s going on and whether a deal could be made.

Auctions are great in Cali right now. Big investors aren’t playing yet but they will in 6-12 months. I’ve been seeing a lot of sales 60-67% of value, more than the loan value but still at good numbers if you can get to auction to buy.

Get with a title rep. Mine will pull pre-Lims for me showing liens against property to make sure bidding at auction makes sense. I then do a drive by, door know to try and get a scope on condition of property. From there, calculating my best offer before walking in to auction.

Exactly - getting to them before the sheriffs auction is the plan here. I think this takes more time and has a lower success rate than actually going to auction - but I plan to do this with the ones that have something "great" about them - location, size, condition etc. So it sounds like this is just door knocking with a purchase agreement and making a deal - is that accurate? Then the house is "pending" and you essentially have it locked down, but you must get the house paid etc before the auction date. 

I'm just thinking the lender has top be involved somehow here, but I'm not sure why. I mean you could find yourself making a deal that is just not enforceable/valid. How do you prevent that?

 The closer to the sale date, generally the more motivated to do something about it, in theory... but watching Auctions right now and seeing houses go to sale with masses of equity just doesn't make any sense.... Most of the time people don't want to sell when you door-knock, want versus need are two important sides, and its unlikely to be a good convo and "sign this purchase agreement", more a dk one day, back the next week, and maybe more dk's in there before a decision is reached to sell.  I'm door-knocking some auctions right now around 10 days before sale date... still time for me to jump in if they want to sell before sale date, but if not I can at least check out the property to get an idea of condition before going to auction, so its more like auction recon, with the added bonus of potentially speaking to owner and working something out before Sale date.

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  • Eliott Elias
    Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
    3y

    Depends what kind of auction. If the owner has some kind of debt more than likely paying off what is delinquent and bringing the seller into good standing will do the trick. 

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  • Jeremy Horton
    OP
    Rental Property Investor · Somewhere over the Rainbow · Member since 2021 · 1k+ posts · 1k+ votes
    3y
    Quote from @Eliott Elias:

    Depends what kind of auction. If the owner has some kind of debt more than likely paying off what is delinquent and bringing the seller into good standing will do the trick. 

     This would be for the county sheriffs auction

    For sure these people are 6+ months behind on their payments, could have additional liens on the property - there is no telling. I would get the title checked until I know I can do it myself confidently. 

    It would look something like this: ARV 150K, unknown mortage balance (guessing average is 0-100k since most are older homes), and I would offer somewhere between 70-100k depending on the amount of repairs it needed. So I can come up with a sale agreement - but what's next? Does this sale need to get approved by anyone other then myself and the seller?

    Off market properties I've done in the past were just a sales agreement then off to the title company/lender to get financing and recorded. I don't know why but I am just imagining a foreclosure may be different?

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  • John Slater
    Real Estate Coach · Riverside County, CA · Member since 2017 · 238 posts · 157 votes
    3y

    @Jeremy H.

    Consider getting to them before auction is posted. They are 90 days in pre foreclosure before sale date is being posted and for me that’s the time to get out and door knock to see what’s going on and whether a deal could be made.

    Auctions are great in Cali right now. Big investors aren’t playing yet but they will in 6-12 months. I’ve been seeing a lot of sales 60-67% of value, more than the loan value but still at good numbers if you can get to auction to buy.

    Get with a title rep. Mine will pull pre-Lims for me showing liens against property to make sure bidding at auction makes sense. I then do a drive by, door know to try and get a scope on condition of property. From there, calculating my best offer before walking in to auction.

    0Reply
  • Jeremy Horton
    OP
    Rental Property Investor · Somewhere over the Rainbow · Member since 2021 · 1k+ posts · 1k+ votes
    3y
    Quote from @John Slater:

    @Jeremy H.

    Consider getting to them before auction is posted. They are 90 days in pre foreclosure before sale date is being posted and for me that’s the time to get out and door knock to see what’s going on and whether a deal could be made.

    Auctions are great in Cali right now. Big investors aren’t playing yet but they will in 6-12 months. I’ve been seeing a lot of sales 60-67% of value, more than the loan value but still at good numbers if you can get to auction to buy.

    Get with a title rep. Mine will pull pre-Lims for me showing liens against property to make sure bidding at auction makes sense. I then do a drive by, door know to try and get a scope on condition of property. From there, calculating my best offer before walking in to auction.

    Exactly - getting to them before the sheriffs auction is the plan here. I think this takes more time and has a lower success rate than actually going to auction - but I plan to do this with the ones that have something "great" about them - location, size, condition etc. So it sounds like this is just door knocking with a purchase agreement and making a deal - is that accurate? Then the house is "pending" and you essentially have it locked down, but you must get the house paid etc before the auction date. 

    I'm just thinking the lender has top be involved somehow here, but I'm not sure why. I mean you could find yourself making a deal that is just not enforceable/valid. How do you prevent that?

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  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    3y

    @Jeremy H.

    Most properties listed for auction today don’t go to auction as borrowers are filing bankruptcy

    I have posted on here probably 100x that an investors best friend should be a note investor, as they are the bank and will work with investors. I have investors in several markets when we foreclose we go right to them. We have done deals where we finance it straight up or partner on the deal.

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  • Jeremy Horton
    OP
    Rental Property Investor · Somewhere over the Rainbow · Member since 2021 · 1k+ posts · 1k+ votes
    3y
    Quote from @Chris Seveney:

    @Jeremy H.

    Most properties listed for auction today don’t go to auction as borrowers are filing bankruptcy

    I have posted on here probably 100x that an investors best friend should be a note investor, as they are the bank and will work with investors. I have investors in several markets when we foreclose we go right to them. We have done deals where we finance it straight up or partner on the deal.

     Ok - this will take me a little research but is worth looking into. Might be a little more in depth than what I can handle for a few months - there's a lot I just don't know about note investing (my network would need to expand substantially). Seems like the idea is to buy a non-performing note - either get the payments or foreclosure on the property then rehab and rent from there after the foreclosure process. 

    But seems like a good way to invest in properties at a discount - thinking a note broker is the best way to go (finding a loan that's not getting paid on would be tough for an average joe). Who would you actually contact that holds the note? I need to find someone locally I can talk to about this

    I think this would be a good step to prepare for while going to auctions

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  • John Slater
    Real Estate Coach · Riverside County, CA · Member since 2017 · 238 posts · 157 votes
    3y
    Quote from @Jeremy Horton:
    Quote from @John Slater:

    @Jeremy H.

    Consider getting to them before auction is posted. They are 90 days in pre foreclosure before sale date is being posted and for me that’s the time to get out and door knock to see what’s going on and whether a deal could be made.

    Auctions are great in Cali right now. Big investors aren’t playing yet but they will in 6-12 months. I’ve been seeing a lot of sales 60-67% of value, more than the loan value but still at good numbers if you can get to auction to buy.

    Get with a title rep. Mine will pull pre-Lims for me showing liens against property to make sure bidding at auction makes sense. I then do a drive by, door know to try and get a scope on condition of property. From there, calculating my best offer before walking in to auction.

    Exactly - getting to them before the sheriffs auction is the plan here. I think this takes more time and has a lower success rate than actually going to auction - but I plan to do this with the ones that have something "great" about them - location, size, condition etc. So it sounds like this is just door knocking with a purchase agreement and making a deal - is that accurate? Then the house is "pending" and you essentially have it locked down, but you must get the house paid etc before the auction date. 

    I'm just thinking the lender has top be involved somehow here, but I'm not sure why. I mean you could find yourself making a deal that is just not enforceable/valid. How do you prevent that?

     The closer to the sale date, generally the more motivated to do something about it, in theory... but watching Auctions right now and seeing houses go to sale with masses of equity just doesn't make any sense.... Most of the time people don't want to sell when you door-knock, want versus need are two important sides, and its unlikely to be a good convo and "sign this purchase agreement", more a dk one day, back the next week, and maybe more dk's in there before a decision is reached to sell.  I'm door-knocking some auctions right now around 10 days before sale date... still time for me to jump in if they want to sell before sale date, but if not I can at least check out the property to get an idea of condition before going to auction, so its more like auction recon, with the added bonus of potentially speaking to owner and working something out before Sale date.

    1Reply
  • Jeremy Horton
    OP
    Rental Property Investor · Somewhere over the Rainbow · Member since 2021 · 1k+ posts · 1k+ votes
    3y
    Quote from @John Slater:
    That's my thing - I think door knocking has a relatively lower rate of return, if you will, compared to an auction. Takes a lot of time and has a low success rate - but I want to do this with select properties only. Good point with it being like an auction recon - if nothing else it may help you when you get to auction. How do you ensure you are offering over the mortage balance...my thing is - is the lender still holds the title how can you have an agreement with the occupant on the sale? You'd have to at least match the mortgage balance? How to you ensure you do that? Imagine a seller signing an offer for less than the mortgage balance is...like a short sale? The lender has to be involved somehow it feels like 

    I read "Bidding to Buy" over the last week and a half - there's a decent system to follow as far as looking at the properties that are for sale, filtering them down to the ones that work for you, doing title searches (will likely have this done for me until I can match what the title company says), then drivebys (possibly door knock at this time), property analysis, then go to the actual auction. Fairly straightforward
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