Someone outbidding everyone at a sheriff sale/auction

Cleveland, Ohio
General Real Estate Investing
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Someone outbidding everyone at a sheriff sale/auction

Todd Jones
Member since 2023 · 243 posts · 199 votes

This as been bothering me for several, several years so I'd figure I'd ask the experts here. Thank you in advance, btw.

Background:
When I looking to buy my first home, I tried the sheriff sales as I didn't find any good prospects through the MLS based on my budget. You're not allowed to look or walk around but I refused the site unseen so I drove by them. Understandably, my family was against it per their contractor/real estate experience. My brother said "You'll buy a house but it will have a toilet in the middle of the living room and the worst part is...it works." Some of you know that he is not 100% inaccurate.

I found very good prospects and I went with my required amount ready to buy at the Justice Center. Bidding starts at 70% below the city's appraised value (e.g., the bid starts at $70,000 for a home appraised at $100,000).
A millisecond after the auctioneer started the bidding on the 1st home, a man said "bid" assertively while writing on a clipboard. Another person jumped..."75". Without hesitation, the "clipboard guy" stated "120". The 2nd guy didn't bother.
This process continued on for most of the homes. He kept out bidding everyone by jumping the price to a high value that didn't seem to be necessary. There was only 1-2 times that day where he was out bided but the homes weren't worth it as I thoroughly research each home on that list. My potential homes were taken off the list at the last minute as I assume the owner negotiated w/ the bank on their foreclosure.

These sheriff sale deals were too good to pass and I found other potentials so I went to the next one. The same thing happened. Same clipboard individual and same process. My potential home that I really wanted came up. I tried but he jumped past my limit after 3 bids. I tried to talk to him afterwards but he was all business and didn't want to interact.

Someone told me he was most likely a representative of the bank(s). His objective was to get the bids up to the level where the bank can get their money back. But his strategy seemed illogical.  He out bided a considerable amount of individuals. I understand that the bank "winning" the bid is like "I'm going to buy the shoes I already own".
But I though banks want to liquidate homes out of their portfolio ASAP and write it off money loss for taxes.

Question:
Has anyone experienced this at sheriff sales/auctions?
Was the guy really a representative from the bank or a rep. for someone who wanted all the homes they can get where price didn't matter?
If he was from the bank, was the bank's strategy to get all their money lost from the foreclosure (and maybe more) and if they can't, just keep the home and use it for tax write offs for years (i.e., all or nothing)?

I really want to go back to them as the deals still look great to this day. 

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Kevin Sobilo
Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes
3y

@Todd Jones, they may have been a bank representative. The lender may believe the property is worth more and want to recoup as much as possible.

In my state (PA), the lawyer for the lender announces the "Upset Price" the theoretical price the lender is willing to bid up to to keep from wasting time in the auction bidding up to that. If nobody bids after that the lender takes the property for the MINIMUM bid and pays LESS closing costs from the auction as a result.

If someone bids, they typically start at that Upset Price and go up from there. So, in my state its very clear that the lenders are getting 90% of the properties back at a Sheriff's auction as they seek to recoup as much as possible from a sale.

Also, the "City's Appraised Value", it likely meaningless. It is probably the assessed value used for property taxes and may be woefully out of date or incorrect. They might be valuations from 1999 for example. So, you can't base any thinking on that. 

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  • Kevin Sobilo
    Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes
    3y

    @Todd Jones, they may have been a bank representative. The lender may believe the property is worth more and want to recoup as much as possible.

    In my state (PA), the lawyer for the lender announces the "Upset Price" the theoretical price the lender is willing to bid up to to keep from wasting time in the auction bidding up to that. If nobody bids after that the lender takes the property for the MINIMUM bid and pays LESS closing costs from the auction as a result.

    If someone bids, they typically start at that Upset Price and go up from there. So, in my state its very clear that the lenders are getting 90% of the properties back at a Sheriff's auction as they seek to recoup as much as possible from a sale.

    Also, the "City's Appraised Value", it likely meaningless. It is probably the assessed value used for property taxes and may be woefully out of date or incorrect. They might be valuations from 1999 for example. So, you can't base any thinking on that. 

    6Reply
  • Jacob Graves
    Investor · Cleveland, OH · Member since 2019 · 64 posts · 29 votes
    3y

    I think your take on it is exactly what's happening. the bank/plantiff wants top dollar

    0Reply
  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    3y

    @Todd Jones This is very easy to figure out.  Just look at your county property records and see who the property owner became after the auction.  Likely it was the  foreclosing bank.  It is very common for banks to simply bid up the total amount they are owed. This way, if they get it back, they can put on the mls and sell it on the open market for the best price. And, they’re not “paying” their bid price, like a third party bidder would, they have a “credit” for whatever their judgment amount was….no money changes hands, except for some auction fees.

    3Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    3y

    Clearly that bidder works for the bank. The bid will be mortgage balance plus all their associated legal costs. The bank is not going to take a loss on the property at the sheriff sale. They will list the property in order to sell it for the maximum amount they can.\

    In order to win the auction, you would need to bid higher than the banks bid, so they are made whole.

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    1Reply
  • Bob S.
    Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes
    3y
    Quote from @Todd Jones:

    This as been bothering me for several, several years so I'd figure I'd ask the experts here. Thank you in advance, btw.

    Background:
    When I looking to buy my first home, I tried the sheriff sales as I didn't find any good prospects through the MLS based on my budget. You're not allowed to look or walk around but I refused the site unseen so I drove by them. Understandably, my family was against it per their contractor/real estate experience. My brother said "You'll buy a house but it will have a toilet in the middle of the living room and the worst part is...it works." Some of you know that he is not 100% inaccurate.

    I found very good prospects and I went with my required amount ready to buy at the Justice Center. Bidding starts at 70% below the city's appraised value (e.g., the bid starts at $70,000 for a home appraised at $100,000).
    A millisecond after the auctioneer started the bidding on the 1st home, a man said "bid" assertively while writing on a clipboard. Another person jumped..."75". Without hesitation, the "clipboard guy" stated "120". The 2nd guy didn't bother.
    This process continued on for most of the homes. He kept out bidding everyone by jumping the price to a high value that didn't seem to be necessary. There was only 1-2 times that day where he was out bided but the homes weren't worth it as I thoroughly research each home on that list. My potential homes were taken off the list at the last minute as I assume the owner negotiated w/ the bank on their foreclosure.

    These sheriff sale deals were too good to pass and I found other potentials so I went to the next one. The same thing happened. Same clipboard individual and same process. My potential home that I really wanted came up. I tried but he jumped past my limit after 3 bids. I tried to talk to him afterwards but he was all business and didn't want to interact.

    Someone told me he was most likely a representative of the bank(s). His objective was to get the bids up to the level where the bank can get their money back. But his strategy seemed illogical.  He out bided a considerable amount of individuals. I understand that the bank "winning" the bid is like "I'm going to buy the shoes I already own".
    But I though banks want to liquidate homes out of their portfolio ASAP and write it off money loss for taxes.

    Question:
    Has anyone experienced this at sheriff sales/auctions?
    Was the guy really a representative from the bank or a rep. for someone who wanted all the homes they can get where price didn't matter?
    If he was from the bank, was the bank's strategy to get all their money lost from the foreclosure (and maybe more) and if they can't, just keep the home and use it for tax write offs for years (i.e., all or nothing)?

    I really want to go back to them as the deals still look great to this day. 

     You really are working much too hard and also you do not have any experience. Starting bid at 70% TERRIBLE, what about the 20k in repairs or more? Did you walk the property at least the exterior?  Do you have an idea of the reno budget ?  I have purchases dozens and dozens from the Auctions and would never pay 70% , I want to be ALL IN 70% .  

    All you need to do is connect with those that provide rentals, much easier process.

    All the best  

    0Reply
  • Todd Jones
    OP
    Member since 2023 · 243 posts · 199 votes
    3y
    To clarify,

    This was well over 15 years ago when I was buying my first primary home, not a rental. The sheriff’s sales set the starting bid at 70% of the city’s appraisal. The city’s appraises a home much less than what it’s actually worth.

    Ex. The city appraises it for $100k for tax purposes. The home itself was probably originally worth $130k or more if it were to be on the MLS. 
    They start the bid at $70k of the foreclosed home, which isn’t the best deal but it isn’t bad as these were in good condition.

    For my picks, I looked at the exterior thoroughly as much as the law allowed (roof, foundation, windows, driveway, garage). I was pretty young and when documentation said “Not in any circumstances are you to approach the parcel for any reason”, I took no chances of being disqualified.

    I still see the one that got away every once in a while (all brick large Shaker Heights home) but no regrets as the taxes would be laughable. The actual home I got was extremely well taken care of with high quality components with attention to detail. His home was his retirement project. So my goal was met.

    1Reply
  • Andrew Weiner
    Property Manager · Cleveland, OH · Member since 2020 · 268 posts · 315 votes
    3y

    The banks are bidding up to a number because the money they bid is coming back to them anyway. Also they may have insurance policies through FHA or other programs that mean they would lose money if they don't get the property back and complete the conveyance process. It might not make logical sense for us but they have other considerations beyond simple cost of property and resale value.

    There are also other institutional investors out there that are buying up properties because they need to deploy capital, it feels like they are playing a numbers game that if they buy enough that meet certain criteria they will come out ahead on average.  

    1Reply
  • Evan Bonnell
    Investor · La Salle, IL · Member since 2014 · 43 posts · 28 votes
    3y

    I've purchased many homes at auction, and have never seen this type of activity. I would say don't get discouraged though. 80% of the time I walk out empty handed, but if you're persistent you'll be rewarded.

    Also, I've bought houses at 60% discounts, I don't care if a toilet is in the living room, that's a $1000 problem. 

    1Reply
  • Todd Jones
    OP
    Member since 2023 · 243 posts · 199 votes
    3y
    Quote from @Evan Bonnell:

    I've purchased many homes at auction, and have never seen this type of activity. I would say don't get discouraged though. 80% of the time I walk out empty handed, but if you're persistent you'll be rewarded.

    Also, I've bought houses at 60% discounts, I don't care if a toilet is in the living room, that's a $1000 problem. 

    I agree. I was nervous as it was my first big purchase. Back then, buyer’s remorse was my biggest fear. Now, my philosophy is it can be fixed with the right tools, resources, and knowledge and once it’s done, it’s done.

    I though about it and my next purchase my be an auction as the MLS is silly now.

    Also, as @Andrew Weiner mentioned, that individual may have been buying homes for someone else to increase their capital for tax purposes. I saw a Robert Kiyosaki interview where he told his team to buy 1.2M worth of property as it was approaching the EOY and he needed to be more in debt for tax purposes.

    0Reply
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