The boom in foreclosures has meant an increase in opportunities for auction companies like the Real Estate Disposition Corporation of Irvine, Calif.; Hudson & Marshall, a Dallas-based auction firm; Kennedy Wilson Auction Group of Beverly Hills, Calif.; Dovebid of Foster City, Calif.; Williams and Williams of Tulsa, Okla.; and many other auction firms.
Not only are auction transactions trending upward, but new players are entering the auction business. With a growing number of sellers looking to put their foreclosures on the auction block, real estate companies are now getting into the auction business, competing with traditional auction firms. CataList Homes, for example, is the newest entrant. Sotheby’s, Prudential, Coldwell Banker and other real estate brokerages are also launching real estate auction divisions to tap into this ever growing sector.
Buyers are becoming increasingly interested in buying foreclosures through auctions. As housing prices continue to drop and mortgage foreclosures reach staggering levels, public auctions around the country are luring investors and first-time homebuyers looking for bargains, according to auctioneers, real estate brokers and homebuyers.
To get into an auction and obtain a bid card, bidders generally must register before entering the auction (or on-site) and bring a certified or cashier’s check (made payable to themselves) for $5,000 to $10,000, depending on the property and auction company. Generally, winning bidders must immediately come up with a 5 percent earnest money deposit on the purchase price of the property, plus a 5 percent “buyer’s premium” (a commission). Investors buying more than one property need to shell out even more cash — both in cash deposits or higher interest rates for financing.
Most of the auctions are in areas where developers overbuilt or where the local economy is in trouble. Many auctions are in real estate bubble states like California, Nevada, Arizona and Michigan, or in resort areas where real estate is not moving quickly, like the coastal sections of Florida or the Carolinas — and some areas in Colorado or Ohio and to a lesser extent Minnesota.
Some auction companies place their own bidders — sometimes called shills — pretending to be interested buyers in the audience to lure others into bidding higher and driving up the sales prices. The use of shill bidders, which is illegal in some states and tolerated in others, is unethical if not disclosed in the auction materials, experts claim. Bidders, therefore, should know if the person who is bidding against them is really a legitimate buyer, the actual lender or a shill.
To avoid unscrupulous real estate auction companies, look for auctions that are sponsored by licensed real estate brokers and have information about the property available to prospective buyers before the auction — both online and in printed materials. Look for auctions that will allow you to be represented by your own real estate agent or attorney. Be cautious at reserve auctions and seek out absolute auctions.
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