Buying at Auctions?

2124992453_d53db51a2fNote: This post is completely from my personal experience and probably not true for all of the United States.

We think we are pretty good at buying properties at a relatively profitable discount compared to the rest of the market.  This allows us to fix up neighborhoods and make a bit of profile while doing it.  We are still always looking for new ways to pickup real estate at a deep discount.  Our offers are typically cash strong, large earnest money deposits and a cash closing within 14 days.

An investor friend had mentioned that he had heard the local auctions had started to yeild some better deals, so we decided to check it out.  The well publicized REDC US Home Auction was coming to town and we went to visit all of the 23 properties in our market.  Probably about 5-6 of them where heavy fixers, and did not qualify for their “conventional finacning”.  We built an intense spreadsheet, determined the ARV of all 23 properties, subtracted the 5% buyers fee, rehab costs and our other fees and came up with a maxiumum bid on all of the properties (other then 2 that we would not take for free).  We got pretty excited thinking we could pickup 3-4 properties at a great deal and came to auction prepared with enough cash to buy up to 5 properties.

The morning of the auction we got there about 15 minutes before it was starting and the room was overflowing, with people of all types.  I would imagine 25% where investor types and 75% where retail buyers.  This was not a great sign, but we where hoping many of the buyers where just looking.

Before you know it, they where warming everyone up and getting everyone excited.  Mock auctioning the convention center for 100 million dollars.  After we saw the price of the first couple properties we where shocked.  Our town was quite early in the auction…  the first house, our maximum bid was 147,000.  It sold for 217,000.  Pretty much every house after  that went for at least 150% of our maximum bid, with many of them selling for much more then our fully fixed ARV was.

We left the auction soon after with somewhat mixed feelings… we are very happy about what we pay for the houses we currently buy right out of the MLS, the biggest realization is there is still a lot of STUPID money out there in California.  They must be better at selling the properties then we are, or ready to loose a lot of money.

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One Response to “ Buying at Auctions? ”

  1. Mike Z says:

    Yep lots of stupid money chasing over priced fixers. I saw the same thing in the central valley where I buy Rental Properties. However, at least 50% of what was sold at auction actually came back on the MLS 60 days later becuase the buyer couldn’t close or they figured out they over paid.

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