Anyone have experience w/ Auction.com ?

[Justin Wheeler]

Hi there,

Newbie here that just came across Auction.com and wondering if anyone has any experience with them?

I have a few properties flagged that look like potential wins but a bit nervous because they are online auctions. 

Thanks in advance for any guidance! 

Justin

[Sebastian E.]

Yes it is a legitimate website. There are a few different kinds of listings on there which I suppose is the first thing to be aware. Some of the listings will list as an in person auction, usually at a courthouse, which is a foreclosure auction. This means the borrower has defaulted on the debt and lender has gone through the legal process of foreclosing on the property. Almost always the starting bid at the auction will be the amount that is owed on the note plus the amount in arrears plus any other applicable fees and penalties. If that number is more than the value of the house at present there will be no bids (usually sometimes someone may buy it above the value for whatever reason) and the bank will effectively take the house back. It then becomes an REO (bank owned property) and they will dispose of it months later either again through auction (oftentimes on auction.com) or by listing it with a broker local to the area. Years ago these prices were oftentimes below market rate because the properties are often neglected. In my market, I am seeing those prices more correlated with market rates today. Some of the HUD homes (FHA federally backed mortgages) which are properties that have been foreclosed on even get renovated and then resold at market rate, (you can find those on hudhomes or homepath) so these are very rarely good deals as they expect retail values when they sell them. If they end up on auction.com as REOs they usually have a 2 day online auction to dispose of the property. There are also occasionally normal private sellers who list properties on there as well but that isn't as common. So that is for the listings as such.

In relation to your question of things to know as a new investor, the most important one is that you generally (there are exceptions) have to purchase these properties in cash. Either you have that cash on hand or have an established relationship with a private lender who is willing to lend you the money. Time is of the essence in that case because if you are not able to come up with the money within the timeframe of the contract you risk the loss of your earnest money deposit. Years ago I was able to get traditional financing on a property that I bought on auction.com but this is very risky because theoretically you can not enter the property until after you have closed and a traditional mortgage lender has to enter the property in order to conduct an appraisal of the property and they wouldn't be able to do that if they can't enter. The same is true if the utilities are turned off for example.

So the most important thing to know in your case is that you either have the cash ready or a source ready to lend you that cash otherwise it is a non-starter. 

I hope this helps.