BiggerPockets

A lot of these threads have popped up lately.

When an reo is aged, 90-120 days, they may pull it and put it in an auction to change the marketing strategy.

With 19 days left to bid, it's in pre auction mode. Meaning if you submit an offer and it's accepted, they will pull the property from auction and move forward with you. You won't really be dealing with the bank or the listing agent so much anymore, you will get auction terms instead of bank addendums etc. My first h&m I bought didn't talk to the listing agent once.

How this is better than buying as an reo?
Better price usually (just got one for $200k, it was listed for $270k).
Less competition.

How this is worse?
No inspection period, they assume you inspected before your offer was submitted. Can't get out of auction contract nearly as easily as the reo bank addendums.

I bought one pre auction from h&m, and one post auction. So far I'm happy with keeping up on their site and shooting offers monthly.

So far I have not had luck with the one auction site I tried to use. It was an REO that I tried to buy previously but it went under contract and eventually fell through. I came across it on RealtyBid and had a lot of issues with the way they do business. I would reccomend against that auction site, but I am sure there are good ones out there.

I am a full time investor in California and would recommend that buying at the online or live auctions is not a good way to go in my market. You want to consider the following:

1) The property may have been offered in short sale (you should check) and noone wanted it

2) Then the property went up to foreclosure auction and noone touched it - either opening bid was too high or the property is really awful

3) Then it went up for sale as REO and again noone would buy it.

4) Finally, bank gives up and tries the real estate auction technique, usually with some ridiculous secret 'reserve' price.

I spent a lot of hours touring properties coming up for auction and I can vouch that these are the absolute dregs. Usually they are located in a horrible area and have something really toxic in their condition. Either the places are trashed, have mold, or some other thing that is going to result in high rehab dollars.

Very rarely there will actually be one that you can somewhat accurately determine the rehab costs. So you go to the auction and they set a ridiculously low price that gets everyone excited. I watched 3 houses get bid up way too high (in my opinion) and after the auction the house is still on the market. Why??? If you read the fine print of the auction details you will note that the winning bid is subject to acceptance by the seller. If they don't get what they want you have wasted all the time and effort to find out that the bid was not accepted - probably days later.

In addition you are competing with retail buyers because most auctions only require a cash deposit and then you have 30 days to finance, so a lot of people show up to these auctions. Not to mention the 5% fee that the auction company imposes on top of your winning bid. So, you have to be careful to back that out of your calculation. For example, if you bid $100,000 for the property you are really paying $105,000 for it, not to mention a bunch of milscellaneous transaction costs that will be plugged into the final closing.

If you do have the winning bid they will steer you over to a post auction area and you will be pressured to work with one of their lenders who are onsite. They probably are not the best finance offerings available.

Because of the toxic nature of these types of properties you have to be very careful with pre-inspection. They normally offer one 'open house' period to view the property and most of the time utilities are not turned on. If you are not extremely knowledgeable about construction you will have to bring a contractor/specialist to every open house to help determine the major issues with the property. You are buying 'As Is' and there are no inspection periods allowed after the auction.

Bottom line in my market.... it takes a lot of work for nothing. The online auctions are even worse because you will be working on something and then find it is suddenly pulled off the auction list. That's because some properties on the list are still for sale through regular channels and they may go under contract before the auction date.

If you are an All Cash investor you will get a much better deal making offers directly to the bank. At the live/online auctions they do not discern between cash buyers and financed buyers.

I've bought 2 homes through Altisource Homes, and while they're a little difficult to deal with when it comes to the paperwork, I like the streamlined bidding process. Essentially, you just submit a price, seller concessions, and closing date, and you negotiate the price via the website. Only after you agree on a purchase price do you do the contract, addendums, earnest money, etc. It really saves a lot of time upfront. I also think that there's a little less competition because most buyers and realtors are leery of the web auctions.