Who are Real Estate Auctions good for?

Before I become a full-time investor, I was like everyone else and associated auctions with “good deals.”  The longer I am in this business I am not as sure.

Real Life Example #1

Two weeks ago, we went to a 3 house auction in California.  Two lower-end houses and one higher-end house.  About 30 people showed up, the two lower end house went for about 95% of the ARV (when you add repairs).   The third higher-end house, I was high-bidder on and went for about 73% of ARV (when you add repairs).  It was a messy house, that was hard to value, and most of the bidders came for the lower end house… so we maybe had 3 or 4 competitors, we would have bought all 3 of them if we could.

10 days later the auction company let us know the bank rejected our offer.  They didn’t really give an explanation, but they lowered the price it was listed in the MLS for, still a lot higher than what we bid.

Real Life Example #2

One year ago, we went to a highly publicized REDC auction (http://www.auction.com).  We came ready to bid on about 40 houses, mostly cash-only stuff that needed 20k+ in repairs.  We had cashiers checked lined up to buy up to 10 houses.  The average bid was 50-100% of what our max bid was.  So we where not even close and left feeling that we should buy in the MLS and sell at an REDC auction.  I wonder what % of the deals close?

Real Life Example #3

In some training, they brought in a local small auction company.  They work as investors and help other people sell their homes retail in auction like format.  They have the system down to a science and basically say, they get a strong conventional offer and typically sell deals for 105-115% of market value.  We have discussed trying them on a couple deals, but the fees are just so high compared to our sales costs.

Why?

People are emotional more than logical.  All bids take place in a public environment.  No one likes to lose.

Obviously, this done include trust deed sales, which are a totally different animal.  I also do know investors who have found deals at auctions, just not I…yet.

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