Is there a fee or premium the winning bidder has to pay auctioneer?


#1

Recently, a RE agent in Ventura County, CA advised me that there is a 5 percent fee the winning bidder has to pay the auctioneer over and above the winning bid price. I understand one has to factor in the cost of liens, delinquent property taxes, eviction proceedings, etc., but this is the first I’ve heard of (and have never read about) such a thing. Is the agent merely attempting to dissuade me from buying at auction so I will purchase a REO instead, or might there be any truth to this?


#2

There is no 5% buying fee that has to be paid to the auctioneer, You do have factor in the cost of liens, delinquent property taxes, eviction proceedings, and recording fees, if there are any.


#3

Trustee sales do not require that you pay the auctioneer (or auction company) anything. The lender/trustee covers any auction fees. The auctions you’re likely referring to are the “post REO” auctions that are occurring with increasing frequency …
The 1st (true) foreclosure auction is a trustee sale (deed of trust auction), commonly done on the “steps” of the local county courthouse. If the lender sets the opening bid too high, third-party “steps” investors will not bid. If there are no bidders, in appx 95% of such cases, the property automatically becomes bank owned (an REO). Banks/lenders then typically work with their REO agents and list the property at retail (on MLS, etc). If there are no takers (even after a price drop or two), and the lender is highly motivated to move the property, they will often engage the services of an auction house that sells “foreclosures” (bank-owned inventory). These auction services will often put up teaser prices that will grab everyone’s attention … e.g. a house that should sell for $350K might be listed at 125K. If that price sounds too good to be true, it is ... the lender will typically place a "reserve minimum" price that's well above the teaser list price. The reserve minimum is commonly not disclosed until after the auction has been completed. The giddy winner of the auction is often crest-fallen when he/she learns (sometimes days later) that they must raise their bid SUBSTANTIALLY in order to hit the "reserve minimum." And oh, by the way, you also need to pay the auction house a percentage (e.g. 5%). All of this is disclosed in the auction terms (get your reading glasses out as it's in the fine print) before you bid. There are sometimes very good "deals" to be had at these REO auctions, but read the fine print ahead of time and be prepared for ..."Ooops! Looks like you'll need to come up with more "


#4

Thank you Cody, and thanks for the clarification Danny. That’s what I assumed was the case of trustee sales at the courthouse “steps” but wanted to be sure; evidently, the RE agent is misinformed. If “post REO” auctions are being conducted in my area, I have not personally encountered them but will certainly stand forewarned after reading your response.


#5

Hi Cody, The REO auctions were hot (you would see TV ads all the time) and then sorta disappeared. I have personally started seeing more of them recently. The largest is US Home Auction/REDC. You can check them out at auction.com. I did recently hear a story about an investor that purchased a condo through this type of auction for 70k and resold it for 99k three months later. It is important to always keep your peripheral vision sharp.


#6

in my opinion auction.com is violating the law by having
Trustees sales in NON-PUBLIC venues…

Wait until the lawyers get onto that


#7

What could be more public than an “auditorium” in a hotel? Historically, many Trustee’s sales were held in title company offices or lobbies, atty. offices etc. That worked fine when there were only 0-10 people showing up. In the last couple years w. 50 or more showing up even in smaller counties - the outdoor setting “on the steps” is almost necessary. The way auction.com does it is actually more organized than the steps where you often have 2 or 3 sales being run concurrently.


#8

What is confusing, here, is auction.com conducts 'regular" trustee sales. These are handled just like and other Trustee sale.

They also do “private” auction type sales of REO and other properties. Companies like auction.com charge the buyer a fee on top of what the buyer pays in his “bid” offer. If you look closely on how these are handled, they always start with a meaningless “low bid” and when a bid is made you are told the “reserve price” has not been meant. When the high bid hasn’t reached the so called reserve price, they will then try and get the bank or other owner to accept that high bid. This sales go for full retail price in most cases. You have mom and pop bidders thinking they are getting a deal because of the auction hype and the word “foreclosure” is used in the marketing material. They advertise that financing is available for most purchases.


#9

Most of REDC/Auction.com “auctions” (they do both bank-owned and now also trustee sales) are done in large hotel convention/ballrooms. I believe REDC/Auction.com is sliding around the “must be done in public venue” requirement for trustee sales by advertising their forthcoming auctions and opening the events to all interested attendees (i.e. the public). The issue that I wonder about is their mandatory registration requirement. As we know, most regular trustee sales done down at the courthouse steps, or in a nearby public park, allow anyone to saunter up and observe the process w/o any requirement to “register” … albeit if you want to bid, you must pre-qualify (show sufficient funds and ID). Another REDC/Auction.com angle that I’m not comfortable with is the prospect of having anonymous online bidders participating in the process. I don’t mind bidding against strangers at the steps … but when they’re online (and you can’t look your competition in the eye), it raises the potential for shenanigans or worse.


#10

I’ve attended quite a few of the Auction.com trustee sales that are new and being held in hotel ballrooms. They are open to the public and you do not have to register. I see a lot of innocent bystanders attending the auctions with wide eyes. But, eventually, it is the regulars that are doing the bidding. You can definitely attend the auction without registering with funds.

There is not a 5% buyer premium, only on the REO bank-owned auctions which are a total waste of time for a serious investor.

The hard thing for some of the smaller investors is now there are multiple auctions going on in the County at the same time and you have to make a decision on which one you are going to attend. At least the Auction.com sales have their opening bids out early. But, these are just teaser opening bids, even at the trustee sales. If you research, about 25% of the sales which are going through the entire bidding process, end up with ‘Revert Back to Beneficiary’ after all the bidding is done. So, there is a reserve price stated by the lender and the high bidder does not get the property. And, it is said so low and so quickly it is very difficult to figure out if you got it or not.