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Attended A Real Estate Auction

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I went to a real estate auction yesterday at the Howard County courthouse to see how those operations went and to get a feel for it if I ever wanted to get into the real estate investing thing. All in all the whole deal was a bit anticlimactic because I assumed it’d be this big deal with lots of people and all sorts of fanciness, I mean it’s at court right? (I’ve actually never gone to court before)

Well, when the auctioneer said courthouse steps, they actually meant courthouse steps. Like standing outside the door, just hanging out, auctioning off properties. On the list that day were two properties in Howard County and no one bid on any of them. The auctioneer started off by reading the first property, location, terms and conditions (which was standard and that reading was waived for all subsequent auctions), and starting taking bids. $160k was the starting price and so he opened it up for bidding… no bites. Other than a co-worker who went with me, there were two other guys there with clipboards, taking notes, yammering on their cell phones to their investors; it was a pretty small grouping.

The first one closed with the property sold back to the bank and the second one went through the same deal, sold back to the bank. That one started at $210k and, when we looked it up later that day, it had a assessed value of over $300k – wonder why no one bit, soft market probably? Who knows.

Too bad no one bought, it would’ve been interesting to see what happened from there. The auctioneer did talk to some woman who was obviously new, like us, and explained a few things. You buy the properties as-is and you have to go through the process of evicting anyone who lives there (yuck); like tax liens, you’re responsible for researching everything yourself to make sure the government isn’t hiding toxic or nuclear waste in cans underneath the foundation. Also, the sale blows away every lien under the first mortgage, which makes you responsible for IRS liens and things like that.

Overall it was an anticlimactic but interesting way to spend twenty minutes or so by the lovely courthouse.

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8 Responses to “Attended A Real Estate Auction”

  1. alex says:

    Sounds interesting. Would you ever buy a house (investment or personal) this way?

  2. jim says:

    If it required me to evict someone, no, but otherwise I see no problem with it. There are other and better ways to make a living though I don’t think badly of someone who is willing to or has to evict people (gotta pay to live there, you don’t pay, you don’t deserve to live there).

  3. I’ve purchased a house at auction before. Pretty interesting process. I was fortunate though in the fact that I could view the home before auction. Most foreclosure auctions around here, they won’t even allow you to enter the property b4 purchasing. Who in their right mind would purchase a property without entering it first?

    Around here, they require 10% the same day of winning the auction, and 30 days to get the rest/financing. So far, it has worked out pretty good for me, where I purchased the home @ a 20% discount to market value.

    FT

  4. broknowrchlatr says:

    I have been interested in this process also. I see tax sales in my area for 30%-40% off the appraised value. But then, you don’t know what the condition of it is in since you can’t go through it first and you have no idea whether the people will destroy thins on the way out. Then, you invariably have to fix a lot of things before reselling.

    I always thought that it would be a good idea to call the people up that are losing the house and say you are interested in buying it from them. That way you can look through the house before hand.

    In any case, its risky business.

  5. MDJ expressed my thoughts on the subject. I’d love to get a deal, but why not let you see what you’re getting ahead of time? The seller should put a lot of transparency in the process to get the most for his/her money.

  6. mbhunter says:

    30% off of market ($210k for $300k) isn’t bad but some investors I know catch pre-foreclosures for close to that. Why buy a property sight unseen with the previous owners still in the house when you can do just as well meeting with the owners and being able to look at the house quite a bit?

  7. Khyron says:

    Pre-foreclosures aren’t as easy as they sound, mbhunter. Especially in Maryland. I can’t remember the full name of the law that went into effect last summer (IIRC) but basically, for operating in what previously may have been a not-illegal manner (yes, I mean not-illegal, although it may not have been ethical or specifically legal), you can receive 3 years and 10K per offense (IIRC). The pokey is right down MD 175 from Jim too. (At least one of them is.)

    And be aware that Illinois has adopted a law similar to Maryland’s. An investor friend of mine told me that many banking laws originate in MD and move across the country. Not sure on the specifics as to why but…

    It is fairly typical that you can’t inspect the house prior to the auction, making it an “as-is” sale. Don’t like it? Don’t do this kind of investing. Pretty simple. I can’t think of an auction I’ve seen that allowed inspection prior, except for that 8 unit apartment building I was looking at last year. But you were inspecting on the day of the auction.

    Anyway Jim, I’ll be working on more RE posts in the near future. Just got back from out of town looking at some deals. Can’t say where yet, but there is a LOT of promise out there. I’ll probably do my first deal w/o my partners outside of MD.


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