Auctions - Or did I make a good deal? I am very confused.

7 Replies

Hello Everyone, 

I am someone that have acquired properties buying REO properties, or private sale. Today, I was talking to my attorney and asked about buying properties at auctions. The first thing, which I knew, that buying at auctions could be very risky. He also told me that basically the same people show up at every auction. The good news is that you could still get a good or better deal on a property provided you did your homework. (This includes a title search). Matter of fact, he told me that I may be able to acquire properties faster, and for less money than waiting for an REO. However, on the other side, the bank may not accept the offer at an auction, and you may find it in REO for less money than what you bid on the property. This was a very lengthy discussion why, but it made sense. Now you must remember that if you buy a property at auction, you may have to file the papers for eviction etc... Not to mention to living up to leases the prior owner may have made with a tenant. It is not unusual here for a real estate company to pay a tenant to leave the property.

Now after further picking his brain for awhile, I asked if it was possible to do pre-auction title searches on properties, and how much would it cost?  Well, I know online you can do them for around $140, but of course I could not see in paying that much.  Now the deal that I made with him, was very inexpensive in my opinion. I don't wish to disclose the prices, but he gave me 2 options.   

The first was doing the title search back on the property to the start of the neighborhood, for one price that is higher, or doing the present owner only, which is more reasonable. Either way I choose, he will deduct that from the cost he charges for closing on that property. 

Now, my question is, am I safe enough by going back to just the present owner, or should I pay the 50% higher price to go back to the neighborhoods inception?  

Now I will tell you this, that I may have them do up to 5 title searches for me a week, and I will only expect to get one of the properties at auction of the 5 title searches I have paid for. 

What would you do?

From my experience, go all the way back. I bought a vacant lot one time, believing the prior owner, I just searched their records and all clear. 3 weeks after we closed and I was clearing the property, I received notice from the city the there were $22,000 in demolition and clean up fees from the owner before the person I bought from.

An extra maybe $200/week verses the costs of missing something major.....not really much of a question, search all the way back.  I see many transfers by Warranty deed, that were preceded by QCD's and other issues.

a title search that isn't all the way back will only catch about a third of your problems.    Lots of sales in the bubble weren't done correctly. 

As for choosing 5 properties and actually buying one is laughable.     After years of going to the auction I might be able to pick 10% of the time correctly which are going to be actually sold.   A newbie has a 1 and 100 chance I'd guess.    I got to the point where i didn't even bother to look at the property since the cost didn't justify the added layer of protection.   Margins like anywhere else get thinner and thinner to the point where the risk and reward barely are balanced.

His title search is also something that isn't worth much.   He isn't offering you title insurance, he is simply giving you a search without any guarantee of the quality of his service.    Title search=borderline worthless   Title insurance=protection to a certain dollar amount.     Go hang out at the auction for a few weeks and backwards lookup what ends up being sold.    Then decide if you want to invest your time/energy once you understand the quality of the buys.     Keep also in mind, you have to pay more than they did, lots of guys use to drool over the deals I got at the courthouse steps, i use to remind them they didn't have that option as i would of bid 10-20k more 

@Leigh C  - I was just going to post something about the percentages that the OP had - expecting 1 in 5 is overly optimistic, but you did say it more bluntly :)

Originally posted by @Steve Babiak:

@Leigh C - I was just going to post something about the percentages that the OP had - expecting 1 in 5 is overly optimistic, but you did say it more bluntly :)

 Most of my posts are pretty blunt and crude.    I wish at times my writing skills were better but I simply don't want to put the effort into it.    Maybe if the job paid better I'd word it a little nicer.   

@Richard D.  @Wayne Brooks   I have decided to go back all of the way since inception.  

@Leigh C  @Steve Babiak  Should I be blunt?   Being blunt can be a good thing, I can respect that, I have been around long enough.  I can be hard headed, and by being nice and covering it with flowers may not get a point across.  After all, why am I here?

Now, I realize that if auctions were easy I would see my buying competition at them all of the time.  Now my attorney did tell me that the same crew are at every auction, that I stated in my original post.   I think I have seen them there.  The guy in the black trench coat, the girl with very short, shorts and no bra, and the surfer dude. (JK)  The advantage I have over them is that they are after more attractive properties than I would be interested in, most of the time.   I am above the slumlords, and below the $100,000+ bidders. 

Now it was stated that at auction I would be lucky to buy 1 in 100 properties. I think that figure is a little high, however, at the same time I am a little more optimistic than that. Now before I would even bid on the first property my attorney is going to let me know what I should chase and not. In the past I have bought properties, that after getting them, wished that I hadn't of course and that was buying them REO. I am sure we have all been stuck in one way or another, but following the closings, and what I have seen is that I wish I would have least bid on a few. Maybe the area I am in is a little easier than yours.

To view all of the properties that are up for auction in a weeks time will take me no more than an afternoon once a week to veiw. I have been doing this. I have also been looking for signs if I would risk doing a title search on an auction that may be canceled, such is someone working on the property etc... or the properties appearence. Maybe by even talking to the present owner. I am not someone that is just running to auction either trying to find a good deal, if I were, I would not have contacted my attorney first. Now if I score 1 in 100 buys at auction, that is not a bad score either. Spending $7500 for a savings of $10,000 is still a deal. Not only that, but hopefully, and I do mean hopefully, that I will pick up a property or two I would want that I could not have gotten through REO, or private seller. I have no worries on rather I am able to get title insurance either. I know that a title insurance company may not issue title insurance on a property for at least a couple of years after it was purchased, if ever to the present owner, due to swift QCD's in a short length of time, or contracts that have been reassigned, or maybe more reasons than I know of or could state.

I lost out on an excellent deal, not too long ago, because I did not talk to my attorney before I walked away from it.  So, saying this, I would not advise anyone to pursue a deal like that, unless they had talked to their attorney first.  And I didn't say any attorney.  This is the reason I pay an attorney.  What he charges is more than fair in my opinion. I will also tell you that any title search that he does will be done back to inception. He will even advise me rather or not to do the search, based on his contacts with other attorneys.  He will make sure that my butt is covered before he will allow me to even bid on a property and more than likely what I should offer for it, at least to begin with.   Some of the best deals out there are not for the faint of heart.  I know this, also.

You also say that I should go to a few auctions to begin with, and I have, and planning to go to even more before I make my first bid. 

I also want to make it clear I am not someone that has hundreds of thousands of dollars to play with either.  The properties I purchase are modest to say the least, but I do get very good returns on them.  For now, that is good enough for me.  Maybe it is time to take the next step? 

Oh, before I leave this time, just to let you know that I live in an area that is the safest in the United States from natural disasters. However, most major insurance companies no longer issue homeowners insurance policies here.  Maybe this should tell people something?

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