Reply
Regular Contributor
FurnitureBroker
Posts: 85
Registered: ‎05-28-2010
0

My Experience at a Trustee Auction

I was looking for investment properties for a client, and like everyone else, there is no inventory right now.  Everything seems to get snapped up.  So I took my client to a trustee auction.  We did some prep work before hand, including drive-by's and doing some preliminary title searches on liens.  

 

I was expecting the auctions to yield some deals, since they are as-is, cash only purchases.  I found that the lower priced investment properties were snapped up to market price or slightly higher.  This is my 3rd auction, and I saw a lot of new faces this time.  I saw (what I presumed to be) newbies that bid aggressively when the price was below market, and stopped suddenly when they reached their target point.  The auction is good at creating "urgency" and it is easy to overbid if you let your emotions get the best of you.  Anyone who's bid on eBay knows this.  I was in a back & forth with another gentleman, and in $500 increments, we increased the price by $10,000.  I tapped out at $104,500, $500 less than my max.

I think the lack of inventory is forcing people to be creative/aggressive in their buying.  I'm not sure this is best, but it is what it is.  If anything, I think Mr. Bernanke's low rate policy succeeded in creating inflation.

 

My conclusion is I will still bring my clients to the trustee auction, but I don't expect them to find a "great" deal there.  Maybe slightly below market.

Silver Regular Contributor
Fishmarty
Posts: 681
Registered: ‎08-25-2012
0

Re: My Experience at a Trustee Auction


FurnitureBroker wrote:

My conclusion is I will still bring my clients to the trustee auction, but I don't expect them to find a "great" deal there.  Maybe slightly below market.


Does that 'slightly below market' include a typical 5% auction fee the winning bider pays?

Regular Contributor
FurnitureBroker
Posts: 85
Registered: ‎05-28-2010
0

Re: My Experience at a Trustee Auction

Trustee Auctions are foreclosure auctions like the courthouse steps.  They usually do not have a 5% premium.

 

Sometimes banks sell REO properties with auctioneers.  These properties do include a 5% premium.

 

Someone else had a post on short sales, and if there is a discount on shorts.  A comment was why should a bank sell a short sale for less.  I have a feeling the buyers are bidding the short sales, REOs, and Trustee Auctions to close to market price (So the discount is minimal.  Of course once in while there are those odd ball low prices).

Trusted Contributor
Mortmain
Posts: 198
Registered: ‎10-29-2012
0

Re: My Experience at a Trustee Auction

I went to an auction and none of the homes listed on the public notices came up. They were all higher end homes. At the lower end, a lender big up the price presumably so the home would go into foreclosure. That's not a fair auction. I couldn't believe what I was seeing. I know of a group of investors who frequented trustee sales 2-3 years ago, and even then they were saying the margins were very slim. Now with instutional investors bidding over retail, there's nothing left for the small guy.

Gold Regular Contributor
Andiamo53
Posts: 2,084
Registered: ‎07-12-2010
0

Re: My Experience at a Trustee Auction


Mortmain wrote:

I went to an auction and none of the homes listed on the public notices came up. They were all higher end homes. At the lower end, a lender big up the price presumably so the home would go into foreclosure. That's not a fair auction. I couldn't believe what I was seeing. I know of a group of investors who frequented trustee sales 2-3 years ago, and even then they were saying the margins were very slim. Now with instutional investors bidding over retail, there's nothing left for the small guy.


Umm...lenders can't bid up prices. The minimum price at auction is set by law--which is the total of all outstanding debts. Buyers can bid beyond the minimum but lenders can't. And anyway, why would they want to?  Lenders just want to get their money back--they're not in the business of selling houses because re-selling a foreclosed property involves lots of time, costs (maintainence, agent commissions, taxes)  and risks (if the house sells for below what they're owed). That's why short sales are so popular now--banks would rather take a small loss than have to deal with all the headaches of selling REOs.

 

Gold Super Contributor
Jil
Posts: 3,177
Registered: ‎10-24-2011
0

Re: My Experience at a Trustee Auction


Andiamo53 wrote:

Mortmain wrote:

I went to an auction and none of the homes listed on the public notices came up. They were all higher end homes. At the lower end, a lender big up the price presumably so the home would go into foreclosure. That's not a fair auction. I couldn't believe what I was seeing. I know of a group of investors who frequented trustee sales 2-3 years ago, and even then they were saying the margins were very slim. Now with instutional investors bidding over retail, there's nothing left for the small guy.


Umm...lenders can't bid up prices. The minimum price at auction is set by law--which is the total of all outstanding debts. Buyers can bid beyond the minimum but lenders can't. And anyway, why would they want to?  Lenders just want to get their money back--they're not in the business of selling houses because re-selling a foreclosed property involves lots of time, costs (maintainence, agent commissions, taxes)  and risks (if the house sells for below what they're owed). That's why short sales are so popular now--banks would rather take a small loss than have to deal with all the headaches of selling REOs.

 


If It is bank foreclosures, and the home values are far above the first loan, likely the 2nd lender or other lenders can bid high so that either they get the home to resell at market. It depends on current fair market value of the home.

Regular Contributor
FurnitureBroker
Posts: 85
Registered: ‎05-28-2010
0

Re: My Experience at a Trustee Auction

The lender's opening bid is up to the lender.  It is actually not set by law.  It is customary to be outstanding debt + fees, but not always.  Lenders can set a low bid with a reserve.  The auctioneer sees reserve price and tries to get action to get the prices bid about the reserve.  If it is not at the reserve, he will declare the reserve amount and see if anyone bids.  If no one bids, then it reverts to lender (foreclosed).

Redfin Partner Agent
Adam-la
Posts: 1,913
Registered: ‎03-15-2011
0

Re: My Experience at a Trustee Auction

Sounds like you've had some fun with these.  

 

My only question is why are you attending the auction with clients?   

When I've  had customers interested in buying these type of properties I've encouraged them to bone up on knowledge and make sure they have the cash to deal with potential issues after purchase.  Since there is no agency at the auctions I've avoided attending with clients to prevent any complications with representation and promises.  

Gold Regular Contributor
Andiamo53
Posts: 2,084
Registered: ‎07-12-2010
0

Re: My Experience at a Trustee Auction

[ Edited ]

Jil wrote

If It is bank foreclosures, and the home values are far above the first loan, likely the 2nd lender or other lenders can bid high so that either they get the home to resell at market. It depends on current fair market value of the home.


What you're saying makes no sense. The previous poster claimed that the lender bid up the price to force the property into foreclosure. I am saying that foreclosure  is not profitiable for banks so they avoid it if they can. If you are saying that other (lessor) creditors might bid up the price to acquire it as an investment asset just as any other third party buyer would, I suppose that's possible but then the house would not be considered a foreclosure (i.e. an REO). REOs happen when, as another poster pointed out, the house REVERTS to the original lender because no third parties bid as high as the auction price.

 
Gold Regular Contributor
Andiamo53
Posts: 2,084
Registered: ‎07-12-2010
0

Re: My Experience at a Trustee Auction

[ Edited ]

FurnitureBroker wrote:

The lender's opening bid is up to the lender.  It is actually not set by law.  It is customary to be outstanding debt + fees, but not always.  Lenders can set a low bid with a reserve.  The auctioneer sees reserve price and tries to get action to get the prices bid about the reserve.  If it is not at the reserve, he will declare the reserve amount and see if anyone bids.  If no one bids, then it reverts to lender (foreclosed).


You are correct but you are talking about how lenders SET the auction price/reserve, which BTW can't be higher than all outstanding debts + fees. That has nothing to do with whether a primary lender would OVERBID against active buyers in order to deliberately force the house into foreclosure where a third party actually did bid the reserve price.  I mainitain that this is impossible (or a least so impracticible as to be impossible).

 

Maybe there was a reserve price on the property that @Mortmain observed and not understanding about reserves,  presumed the lender was outbidding interested third party buyers.