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Foreclosures: First Bids

Foreclosures: First Bids

At the property auction the first bid offered is often what is owed on the property to the lender. This bid is usually placed by an attorney representing the lender. To buy the property at the auction, you must offer a bid for more than the amount owed on the loan.

Properties with low amounts owed, and a high fair market value, are the ones that will get plenty of bids. In other words, the more equity that is on the table, the more people (investors) will bid. Expect serious competition and bidding when there is a lot of equity available for someone to grab. As the bids run up, the amount of profit for you diminishes.

Don't expect to buy a $200,000 property for just pennies on the dollar. That's the kind of thing late-night TV infomercials offer as reasons to buy their expensive real-estate investing courses. In reality, this does not happen at foreclosure auctions.

All Sales Are Final

One of the problems with a real-estate auction is that the sale is final. Find a problem in the property and it's your problem, not the seller's. You must still purchase the property. It doesn't matter if the problem is with the title, undisclosed liens, or the property itself: You bought it, and now you own it. It's that simple. Your newly acquired property might have polluted drinking water or be coated with lead-based paint. Whatever it has, there is no recourse or right of recession on your part.

None of the sales terms are negotiable on your part. If you don't agree with the terms, don't bid. You cannot later try to negotiate with the county sheriff or the clerk of courts over how, when, or how much you will pay for the property. If you bid, you have agreed with the terms and conditions of the sale.

Shills and Collusion

It is possible for you to be victimized at a public auction. Shills are people who deliberately drive up the price of the property without the intention of buying it. The purpose is to get a higher price out of you. Shills have been used by unscrupulous auctioneers or a defaulting property owner. By driving up the price, they make more money.

Experienced real-estate investors sometimes deliberately drive up the price of a property to deliberately hurt or damage a new investor. Hoping to stick the new investor with an overpriced property, the idea is to keep the new investor from showing up at future auctions.

You should always keep in mind that bid rigging or collusion could be going on and that you may not even know it. Experienced bidders are known to sometimes meet before a scheduled sale and decide the maximum they will pay for the property. They play a game of driving a price up and let you overpay for the property.

Image by: Photo Dean