Should You Get Involved With Foreclosure Auctions?

There has been much talk online about bird-dogging for cash investors using the foreclosure auctions as a method for tying up deals. There is no question that attending auctions at the courthouse steps, and even the growing number of online home auctions, provides a good way to get to know who the cash buyers are in your area.

In general the people who bid at auction are either highly experienced investors with considerable cash resources to use on deals, or they are inexperienced investors or homebuyers hoping to get a real deal. Too often the newbies get caught up in the hunt and end up over-bidding on a deal. The experienced investors know approximately what each property that is of interest is worth because they know their buying territories intimately and they more than likely have at least inspected the outside of the house. They build in enough latitude in their bids to take care of typical contingencies that might be required to rehab a property bought at auction.

Depending on the state’s auction practices, and the practices of the lender, you may find that many homes are never discounted at the auction and automatically end up being bought back by the lender. This can frustrate a newbie investor or homebuyer who has spent a lot of time looking at properties and coming up with maximum bids for properties that will never really be in play. It takes experience and/or training to avoid the time-wasters and to zero in on the real deals. It takes self-control to then not get caught up in a bidding war on one of these potential deals.

One of the pitfalls is that, even though it is not supposed to happen, sometimes shills will be planted by interested parties to bid the prices up to a level that would be acceptable to the lender (or to take the price to the amount owed.) Obviously, these are not deals and must be avoided.

One of the most difficult risk factors is that a major structural or title problem will be discovered after the auction sale. There is no opportunity to inspect properties before they go to auction, except possibly from the outside or by looking through windows. If the home is occupied before the sale you are unlikely to find the owner or tenant very cooperative about allowing you inside to look around.

Bird-dogging these kinds of deals lowers the risk when someone else’s money is on the line and not your own. A mistake, however, could jeopardize your credibility with the cash investors who have entrusted funds to your care. Avoiding those mistakes can take a LOT of legwork. Bird-dogging auctions is not the quick and easy cash some people make it out to be.

The bottom line on auctions: participate as a spectator until you are very familiar with the players and how to evaluate and bid accurately on properties. Get to know your cash buyers’ investment interests intimately before taking on a property that you can’t take back.

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