Auction Questions: Cashier's checks, opening bids, etc.


#1

Hi Sean,
I am a licensed Real Estate Broker/Building Contractor?in California. I have just completed a major project during a downtime and went to my first auction at the courthouse steps last week. I was shocked. I had no idea there would be only 10 people there and that the auction would be handled so informally. (I think that’s a good thing). Out of the 100 + house listed that day, there were numerous cancellations and postponements. Also, I heard?one guy comment that he was so disappointed that he did not bring funds because one house went with an opening bid 50% of?the published loan balance.?I noticed that everyone there knew each other (but me) and acted “half asleep”…I guess this was their game face. Out of the houses sold, very few were purchased by the attendees and mostly they did not bid against each other except for one house where there were three bidders. I noticed that one small house sold at very low price and showed up in the MLS 4 days later, listed by broker/owner. I saw more than 5 houses that I would have been happy to own at the opening bids. Here are my questions:

  1. How do you guess what the opening bid is going to be and then be prepared with funds with only 1 cent more? For example, I saw a bidder buy a small home in a bad neighborhood for $66,000.01. The loan amount was much higher in the low $200,000’s. How could she have guessed the opening bid was $66,000 and therefore come prepared with a cashier’s check in the amount of $66,000.01 (I heard the auctioneer verify this amount in her funds)? Perhaps she had combinations of checks. So should I bring 1 check for $100,000, a few checks for $50,000, and then some for $10,000, $5,000 and $1,000? If you have to over pay by $900, do you get a refund at close of escrow? I am just curious what you would bring if you were going to an auction planning on buying two small houses around or under $200,000.
    2). And finally, I am surprised to see that in this market one could make money flipping houses. However, based on the sales volume (which is up) on houses under $300,000, it looks like things are moving quickly when there is a good deal. I saw a handful of homes go (most back to the bank) that I think could have moved quickly on the MLS with $30,000 to $50,000 profit. Do you agree? Also, do you recommend staying with less expensive homes (it is so tempting to go for a big score and try to get a premium $800,000 home for $350,000)?
    Although I am well seasoned in Real Estate, I am new to this and also a bit nervous. Thanks in advance for your time and attention.
    ?

#2
  1. Best way to pay is to bring a handful of checks in different denominations. Don’t worry about having the exact amount, the trustee will mail you a refund within a few days. I’ve goofed before on check amounts and have had to wait for refunds of a couple hundred grand. One alternative is to ask the auctioneer if they will go to the bank with you and allow you to exchange for a check in the exact amount. Will depend on how much time they have – and you should offer to pay them for their time in doing this. Finally note there is NO ESCROW. The transaction has closed when the auctioneer says sold and takes your check. Period. You’ll get a deed in the mail a few days later.
  2. There are certainly auction buyers that are still flipping in this market. It is possible to flip in any market if you buy at a big enough discount. Auction investors are usually looking for discounts of 30% or more off CURRENT market value.Finally do note that auction investing does have risks, the three most significant being: 1) You do not get title insurance, and you must pay senior liens - property taxes, the 1st mortgage if you happen to buy the 2nd at sale, etc. 2) You do not get to do inspections (unless you trespass), 3) You will have to evict the owner/occupant if the house is not vacant.Having bought more than 150 properties at auction I will definitely say auction investing has been good to me, but I was fortunate to have a great mentor who saved me from a number of costly mistakes.