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Home Buying Tips – What to Expect at the Foreclosure Auction

One of the most important aspects of buying real estate foreclosures for business reasons is that it is a closed auction. Prior to the auction, you as a buyer have to be able to present a certified check made payable to an escrow or third party as a deposit to be used for the down payment and the cost of the house. The bidding tactics used in particulars are different in each of the states where foreclosures are available, but in all states, bidders must prove through their financial statement that they are capable of paying for the going price of the real estate.

The first participants are those who are not physically present. These are often “mortgage brokers, real estate agents, and title search people”, who attempt to wind you up and make you spend more. They are not bidding on behalf of the property owner and are not bound by a sealed contract. They are drawing lots to see if they can feel one step ahead and possibly walk away with an overbid. You being the over bidder well aware of what a kickback looks like and are not accepting the assistance to purchase the property. The second type of bidders will be those who realize that they stand to make a pretty penny and Semi-professional can put together some pretty slick games that can tip the balance in their favor. It’s in your best interest to be adept at this particular part of the bidding process.

The second type of bidder is those who are at this auction to snatch up a particular property at a really good deal. They are reasonably likely to see the property come up for auction feet-saving up to a far more comfortable 100% of the normal market value price. The third type of bidder is those who know the value of the property could make a nice profit and have their goal to still purchase the property, repair it, and resell it to a potential buyer who can not afford the normal market value.

How is this information that is being offered to those who are not physically present? If you know where you are, you can avoid this information if you are having your second round of biddings. If you are bidding on a property that has already been identified as a foreclosure, it should be as clear as day that those bidding for the foreclosure have to stick with the bid price unless the bank drops their price. If that occurs any other way, you are subject to the bank set a higher or lower price.

These secret bidding tactics used by the banks cannot be used in foreclosure auctions due to the intense experience or expertise or experience of the people bidding at the auction. They “may” be able to get a property for higher or lower than you are willing to bid and based on the experienced or “higher” bidding tactics. They might be able to pressure you to pay more or less if you have not bid already and feel that you can bid higher in all circumstances.

What is the danger of these secret bidding tricks? Consider this example:

Let’s suppose a bank was offering property for what was being called an “owner-occupied” loan. It turns out that the bank was willing to hold the property for another 120 days (at a time frame set by the bank to keep their loan from being “sellable” but not giving you a higher price than what they were already asking). However they weren’t willing to lower their price to the $2,000 above their cap rate, so they were offering it for $2,000 below the cap rate. You bid $2,000 higher for the same property, but now you are facing a higher risk of bidding too high, beating out by an over bidder, or not being able to complete. That is your bad, but the bank’s good.

However, this same bank was willing to drop the price a couple of times to get more money. Their idea was to get $15,000 over their desired cap rate to turn around an 11.4% money deposited into the bank.

They are essentially gambling you can negotiate with the bank and get the bank to drop your price. Don’t get caught up in the emotion of the game and base your costing to win your bid on whether the bank is going to dump the property or not. It’s important that you know that there are other ways that you might bid on the same property.

What if you have a bidding war and every participant agrees to start at $2,000? Well, the bank can afford to lose $4,000, so now you’re at a $4,000 drawdown and you’ll get nothing.

How much more does that cost you? An $11,000 home for $10,000 less?

Some of the pitfalls are the ones we’ve seen in the news lately, that the bank who had the foreclosed property wasn’t willing to at least see the property.

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