Scary low prices?

Question

Just an example to see here if you want to look:

http://www.auction.com/Virginia/residential-auctio...

Something like this to me seems just scary low. The price makes me think there's a hidden hang-up with the property somewhere.

I see it's been listed for around 9 months, is in a decent area close to some slightly better than average schools.

Any tips on better educating myself on properties like these?

Also, anyone have knowledge on what this is? (from Auction.com transaction details)

• A Buyer's Premium equal to 5% of the Winning Bid Amount or $2,500 (whichever is greater) will be added to all Winning Bid Amounts to determine the Total Purchase Price.

Katharine Chartrand · Answer

Auction.com puts a very low starting bid on properties... way way below the reserve the bank is willing to pay. Unlike hubzu, where you can figure out the reserve by bidding over time, auction.com doesn't tell you what the reserve is. Auction.com appears to be actually negotiating with the bank on each property, They don't know what the bank will accept until after they provide the bank with a purchase agreement from the winning bidder.

The low starting bid attracts interest because that is the price that appears on sites like zillow when you search for houses for sale.  Wow! that $200K condo is for sale for $50K! Well not really but made you look.

When an auction closes on auction.com... one of two things happen.  it's either rejected right away or they ask you to sign a purchase agreement for the winning bid price that is subject to bank approval.  In my experience, if they choose to move forward with the purchase agreements, the bank generally accepts it, but not always.

Certainly the staler the property, the lower the bank will go... I am sure that auction.com uses the bidding history on a property to convince the bank to proceed on a lower price than they wanted.  The fact that that property has been out there for a while is good.

So don't worry about the scary low price.  It's not real.  Bid on the property.  Be patient if you win but it isn't accepted.  Another auction will post.  Bid again.  They will use the data they get to bring the bank down.  Especially on a stale property, they will call you if they think the winning bid is too low to be accepted.  They will ask you to raise it.  I generally hold out.

The minimum commission auction.com takes is $2500.  It is ADDED to the winning bid.  once the winning bid goes above $50K, they take 5%... but it is ADDED. Nothing unreasonable there, just a sensible way to run an auction.

And read the fine print in the sample purchase agreement before you bid.  You will have to sign it within hours of the auction close if you win.  They have different types of sales.  The short sales are pretty straight forward.  The occupied homes, not so much. Not every type of sale they have will suit you.

Overall, I have found auction.com to be an honest and reputable company and I would not hesitate to bid through them.

Micheal Waldrup · Answer

Excellent advice @Katharine Chartrand , I will always make sure it's the numbers and not emotions driving my bidding.

Thanks again!

Katharine Chartrand · Answer

Exactly.  All of that stuff... occupancy, quitclaim deeds ... can be potentially cleaned up.  But it takes a lot of research, risk mitigation and sometimes cash to do .  Don't get into something you can't handle.

And don't get mad at auction.com for the terms.  I am confident they don't write the purchase agreement or set the terms.

But the property you linked to looked straight forward.  Just don't over bid.  Beware this whole "winning" mojo in auctions where you "win" by posting the highest bid.  And then when you get the property you are a "WINNER".  Actually if you paid too much you are an idiot, not a winner. Go slow, be conservative.

with 2 of the 4 auction.com properties I have purchased through auction.com, I was not the highest bidder.  The highest bidder dropped out, as they often do.  auction.com called me and asked me if my lower bid still stood and they submitted that to the bank.  make sure you are answering phone calls from california in the 4-6 hours after the auction.  although once they called me two days after the auction was over.

this ain't a hubzu auction.  it's a bunch of guys who get a commission if they submit a signed purchase contract that the bank accepts.  work with them and they will work with you.

Micheal Waldrup · Answer

Great answer @Katharine Chartrand , very appreciated!

I noticed there were VERY different occupied states listed in some of the auctions. All the way to using Quitclaims. I researched those a bit and decided absolutely against those for now. Seems like something that would require more due diligence than I'm currently capable of.

Thanks again!