MY ONLINE REAL ESTATE AUCTION ADVENTURE
Can An Unseasoned Homeseeker Get A Winning Bid With A Real Estate Auction Online?
The online auction process can be a daunting challenge. You first have to find an acceptable house that fits your requirements. If it is in danger of foreclosure, there will be no “For Sale” price tag on it yet. You will have to stay tuned in to the potential Real Estate Auction date set by the bank or mortgage company after repossession takes place. Then, once the auction starts and the end date is established, you must follow strict procedures in order to participate.
One of the qualifications required is proof that you have enough money in your account to join in with the bidding process. Almost all Real Estate Auction houses require upfront deposits for registration. You then must part with those funds for the duration of the auction. After that initial outlay, you will need to come up with the remainder of the money required shortly after winning the bid to complete the transaction. If you add the cost of escrow, title transfer, and prorated taxes into the mix, you may feel somewhat overwhelmed by it all.
This is Part 4 in the BUDGETHOUSE RENOVATOR series that involves the search for, location of, and unique auction-style purchase of my home in the country. The series includes dealing with a foreign based auction house and escrow to help facilitate this transaction. Also, I show how I worked with a mortgage company programmed to process the “specialized” FHA 203k Program rehabilitation loans. My loan included funds to buy “and” repair my house. Part 3 is about Finding the Auction House.
When I began my search, I was in no position for the task of getting myself involved with that type of scenario. I had savings for a modest down payment, but no resources to compete in a standardized Real Estate Auction online bidding war. My best bet was to get pre-approved for the FHA 203k loan alluded to in Part 1 of this series. I would then use my availability resources as a budget indicator for locating a house that I felt was a viable option for making an offer on directly to a bank which owned the property I was interested in. Hopefully, said institution would allow me the alternate choice of acquiring a mortgage for the purchase of said property rather than coming up with the total amount of funds in cash to complete the deal up front.
That possibility was made available in the favorable area I was looking at which was the Northwest area of Florida. Most of the foreclosures in the Panhandle are eventually reclaimed by the primary lending institution to protect the outstanding unpaid balance of the loan in default. Then the bank markets them through a Realtor. Many of those properties sit on the market for a year or more. Continuing price reductions eventually bring auction bidders/buyers to the table.
My Auction House Dealings With Hubzu
The house I picked out, as I said earlier, was vacant for at least 4 years, but probably longer than that. Since the records for older homes are not always very accurate, I determined this later on by the dates stamped on the stickers that said “This house has been winterized”. They showed the house was prepped back in 2012 to keep any water from freezing that remained in the heater or plumbing pipes that ran underneath the house or came out f the ground at the well pump area.
It was also under the control of a Real Estate Auction company called Hubzu. Doing some research on them via the internet, I found out a surprising fact: The company is in total control of the property from the auction process all the way through to the competition of the real estate sale itself. It also handles the escrow and title insurance functions for added measure.
What caught my eye was the funding options presented for the winning bid. I could either bring all cash to the table or take option 2: Choose to pay for the house by qualifying for and completing the deal with a mortgage from a loan company. I was astounded that this possibility even existed for a house that was currently listed with an online auction company.
As I did further research, I found out that in June of 2015, the data on Zillow showed the bank that owned the property listed it for an opening “for-sale” price of $174,900. This was waaaay out of my affordable price range. Fortunately, for some reason or another (I have an idea, but that is for another blog), it did not sell (or get bid on) during the early stages of its listing, even though continuing price reductions were in effect all the way up until I came along in February of 2016. In March of that year the owner had reduced the asking price to $79,900. This was a number that was much closer to the affordable one i was looking for, but still somewhat pricey for my tight little budget. (pretty sad, huh?).
This next event actually happened, so I want to emphasize this particular moment in time to help tie this story together. My very first bid was $60,000 online and the bank rejected the bid because it did not meet the “pre-established” reserve price (which is unknown to a bidder) that is typically instituted by a lender.
Tactical Bidding Steps
Quick Facts 1:
When you bid on something at auction you establish a price point that is the maximum amount you are willing to pay. With each competing bid, the auction company bumps your bid up enough to overbid the amount set by the previous bidder. This is known as the Auto Bid. But your new price has to exceed all max price points of any competitors. The seller usually sets a “reserve” figure which is the least amount that will be accepted.
I later found out from the auction company records that the reserve amount on the house at the time I first became interested was $73,000. This was $6,900. less than the “existing asking price”. The “spread” in dollar amounts was a consistent scenario used for the monthly graduated price reductions on this particular foreclosure. So I used this information with the price-drop history for making calculations to figure the reserve limit on possible future price reductions.
Quick Facts 2:
If you bid, say, 2 weeks before the close of the auction, you are setting yourself up to pay a much higher price than you intended because you give other bidders plenty of time to jump in and outbid you. I wait until a few minutes (and sometimes seconds) before the close of the auction to place my bid, cutting out all but any competitor’s pre-established “auto bids” in the competition. I use 2 computers, one having a back-up “higher bid” amount to overcome another person’s auto bid. This allows for a quick follow-up price you are willing to pay without leaving sufficient time on the clock for any challenge. If you exceed all auto bids on the item in question, you win. Crazy tactic, I am sure, but it worked in my favor many times while bidding on Ebay.
Warning! All Of A Sudden You Have Company!
Now, here comes the fun part!
As stated in the previous blog, my wife and I went to look at the house, along with other houses, on the 2016 Memorial Day weekend . Since I had already bid once on this property, I now felt it was well worth the $60,000 amount of my first bid. But I failed to meet the owners reserve price at the time (which was $63,000). But enough time had elapsed to trigger a new price reduction. I wondered what it was. Possibly $59,000? Hmmm!
By now, I was in a much better position for making an offer with a new bid because I had enough information to make an acceptable evaluation. I just had to figure if the new price had dropped to $59,000, or even less, for that matter. The bank holiday that was in place for the Memorial Day weekend created a delay for posting an updated price drop and that glitch didn’t help my online search at a time when I needed it most.
On our way back to Ft. Lauderdale, we decided to go through Tampa because we feared encountering the returning holiday traffic on the Florida Turnpike (a shorter route by 1 hour). This concern was valid because it was a creepy crawly nightmare when we took the route on Friday coming up from South Florida and couldn’t stand the thought of the same thing happening again on the way back.
So, returning home via this alternate route on I-75, we ended up taking a dinner break at a diner in Ft. Myers. While there, I got an automatic email notice from the Real Estate Auction house (Hubzu) on my iPhone that a competing bid had come in at $30,000. Whoa!
All sorts of time had passed with no other bidders joining the party, and now I have a competitor. And this ridiculous offering that was made had me confused by the low offering price, so I began wondering if the lender had now dropped the amount to $49,900. So, I said to my wife, ‘Okay, I am thinking the bank has a pre-configured automatic price drop in place for the 3 day holiday weekend. I need to find out what it is through a backdoor approach’.
The Winning Bid!
The auction company asked me (via preset website portal messaging) to place another bid if I wished to exceed this new one that was in place. So I bid $31,000. When I did that, I found out immediately that the competitor had an auto bid in place, and I was quickly topped out at my next bid which was $32,000. So I came back with $33,000. Outbid again! Then I bumped up to a figure of $36,000. Outbid again! Wow! This meant that I had to find out a way to discover his (or her) top acceptable price. What do I do? Do I use my calculations to see where that bank reserve amount might be set at right now?
Since I knew that the lender was making price drops of $10,000. per pop, I was guessing the new price was down to the figure I previously alluded to, and it was time for the competitor to fish or cut bait. I wanted to eliminate this adversary so I went immediately up to the possible reserve of $43,000. This idea worked. The in-place auto bid was topped, and my figure was accepted as meeting or exceeding the reserve. I was hoping that I jumped my price enough to cause this competitor, as well as any others, to drop out and let me win the bid.
Well, let me say that this strategy was successful. I never heard from that person or any other bidders again. I won the bid at the $43,000 reserve that the seller had in place, a few days later, when the auction ended. This was on a house that I previously bid $60,000 on and had that figure rejected because it did not meet the minimum reserve in place at the time it was made. That was a remarkable savings of $17,000 right off the bat. Is that unreal, or what?
Wrapping Up This Tale
This was my first real estate auction and possibly my last. But it was only the start of an arduous process of dealing with a foreign lender, a foreign agent for the processing, and a loan officer disappearance that dumped a lot of the ensuing legwork in my lap. The ordeal was mind-boggling, and you won’t believe all the steps I went through as described in the tales that follow this one.
In my next blog, Part 5 entitled “Escrow After Winning A Real Estate Auction“, I will show the first steps in this adventure. I will begin to tell you about a long journey that required a lot of fortitude and prayer to get the deal done. But it was well worth it, so I was determined to see it through and hopefully give you some insight on how you can do it too.
I am requesting that my readers click on the links provided and download a sample read of each book and give a review on Amazon. You will have free access to the first four chapters of each book. My hope is that you will like the story lines enough to obtain either an eBook version or a paperback copy that you can put on your bookshelf as a masterpiece when you are done. FATE STALKS A HERO I: RESURGENCE, FATE STALKS A HERO II:THE FIJI FULCRUM, and THE SAGA OF HERACLES PENOIT. I will be giving excerpts on these works in upcoming blogs to familiarize you the reader with exciting details about the contents of each one. Thank you!