The following is an account of my recent “Newbie” experience with Auction.com. After reading the info posted on the forum about Auction.com, there seems to be some mystery in some minds, including mine, surrounding the site.
I watched an auction that just closed this morning. The property I was interested in was within a mile of where I live and had a 15K beginning bid, which made the desire to bid really tempting. I discovered the property (a SFR) about a week before the auction start date and did as much due diligence as I could. I went to the County Clerk and reviewed the records including the foreclosure file, and felt very confident the title was clear. I confirmed the taxes, water and sewer bills were paid, and walked around the property several times, took photos of the exterior etc. The outside looked ok- needed some work, and looking through the windows (YES, IT WAS VACANT!) revealed that a lot of junk had been left, and a need for cosmetic work throughout. Reading the auction details, attached sample contract and addendum, etc., and all the fine print, it seemed to me there was no chance of getting inside to check things out- forget about getting a contractor or inspector though the doors.
So…. my strategy was to bid up to 25K (because no-body will be looking to buy in "Podunk" where I live), use the balance of my cash for repairs (NO MY POCKETS AREN'T DEEP) and hope and pray there was nothing nasty or structural going on. I know this sounds risky and I attended my first REIA meeting last week and was told by a seasoned investor, "YES- IT'S RISKY, but….. I've done it and it paid off."
As I said, the beginning bid of 15K was posted, but what was not made known until the start of the auction was that the bids were to be made in 10k increments. When the auction started, the bid quickly went up to 25K with the 10K increment requirement prominently displayed. This destroyed my strategy to slowly bid up to my 25K max. It stayed at 25K until day two, when the current bid went up to 35K with the 10k increment requirement still remaining. This continued to be the status until just before the close of the auction. When I looked for a final time with about 15 minutes left in the auction, the increment requirement had been decreased to 5k and the current bid had gone up to 40K.
I never bid on this property. The bidding had hit my planned 25k max right out of the gate, and with a 10k required increment in place, I didn't want to risk bidding more because I never saw the inside of the property. I made a mistaken assumption that once the auction started the required bid increment set at the beginning would remain the same. I wasn't going to bid on this propert because it exceeded my tolerance for risk, but I may have missed out. Someone may have gotten a property that could be quickly cleaned up, rented, or sold for a really good price with an ARV which may yield significant equity. Essentially the 10K increment, and my aversion to risk kept me from bidding.
I conclude the following- (if I’m incorrect I hope that someone out there who knows what you’re doing and who is still reading at this point, will chime in):
- Auction.com does not allow showings of the properties it auctions and prospective buyers are "BIDDING BLIND” as someone on the forum posted.
- You must abide by the required bidding increment in place at the time of bidding- I couldn't bid up in an increment less that 10K.
- Forgive me wanting verification of what may be obvious, the purpose of the lowering of the required bidding increment, particularly in the closing minutes, was to prompt more bidding and drive up the bid price.
- Perhaps a better strategy is to get in on the bidding early, bid up to your max bid price if you have to, and hope that if you’re not the winning bidder then you’re the second highest and and in a position to step in should something happen regarding the winning bid.
I went through the same due diligence process on the only other property here in “Podunk” that’s coming up for auction on Auction.com. On my initial “walk-arounds” on the property, I missed a foundation issue because the snow had not yet melted far enough down for me to see it. A review of the foreclosure file for this property revealed that the owners, who inherited this nice property in a very nice area, let it go into foreclosure because they had been informed the property ”is now an unstable home and would not be fit to sell in its current condition.” I promptly went back to this house which sits on a decline and is approximately 10 feet away from the edge of a ravine, and could see a substantial crack just inches above ground level, which extends across the back and one of the sides of the foundation, which had been patched but unsuccessfully repaired.
My final thought, when dealing with Auction.com, and with any real estate transaction for that matter: Caveat Emptor. I know this sounds risky, but give me the right property, and I consider bidding on it. Am I crazy?
Any time and wisdom that you are wiling to share will be appreciated.
Joe
