Jim Valentine: Doing the auction thing

Auctions present an interesting vehicle for real estate sales. As with any auction environment, bidders can get wrapped up in auction fever. Once you make the first bid, it is easy to add a little more … and a little more … and so on as you get past the trepidation of the first offer and get emotionally involved with the purchase. If you buy in an auction situation, have your boundaries set before you start. If not, you might get swept away with the fever of the moment and ego zeal to “win.” As Lisa always tells me, when I tell her that I “won” an e-Bay item, “You didn’t win, you just paid more than anybody else!”

Auctions became prevalent in real estate during the recent recession when the banks owned so many homes that many developed online auction systems for property disposal. Auctions are still used to sell foreclosed properties. In an auction, you will find that there is minimal agent interaction or seller disclosure compared to a conventional selling situation. As such, you and your agent need to be very careful about what you are buying.

Are you bidding on a first deed of trust or a second? If a first, you wipe out the second, but if it is a second, you are buying it subject to the first. If the price seems low and nobody else is bidding, there well might be a reason. Are there HOA liens or any other liens that have priority to the one you are bidding on? Is your perceived value really there? We witnessed a series of ranch auctions one time when the successful bidders all day long were a brother and sister that flew into Elko in twin Grumman jets. They were heirs to a national company. They outbid everybody until the last ranch when they were contested by a foreign national. He kept bidding the price up way past conventional market value wisdom.

He got down to bidding in $1 increments and bought the ranch. After the sale when folks were mingling, we asked him why he stayed in the bidding. He told us that he figured as long as somebody else was bidding that it must be worth it. Unfortunately for him, he was bidding against an anomaly of a buyer, not one to set a price precedent with their “goofy” money bank balance. Be sure to understand that other bidders might have different motivation than you do. If their family lives next door to the subject property, they can justify paying a bit more considering the emotional return on their investment that they will enjoy.

It is also OK to pay less. We were given a bid allowance by a buyer one time to represent them in bankruptcy court on a ranch sale. We were the successful bidder at $20,000 under our given limit. The buyer was shocked and told us that we didn’t spend it all. We told him that we didn’t have to for which he was grateful and gave us a 40-acre parcel as a token of his appreciation.

Be sure that you understand the status of the title, condition of the property and are aware of any deficiencies that can have an impact on value of viability of the property. If there was a meth lab on the property, you could be in for an expensive mitigation process. Did the prior owner vacate nicely or are there vindictive souvenirs distributed around that compromise the value? Do your homework on the property. Neighbors can be a good source of information if you can strike up a conversation with one or more of them.

Our advice: If you are buying at auction, make sure you know what you want from the property. Is it an investment for financial return? Is it where you want to live? Is it ideal for a family member that you can help by buying it? Depending on your motive, you will be able to determine your outside bidding limit. Stick to it and if you miss out, there is a reason. Go to the next one and don’t look back.

It isn’t about “winning” the auction; it is about buying on the price and terms that you want. It is no different than a multiple-offer situation; only it is truly structured as an auction as opposed to simply competing with others for the same thing. When it comes to choosing professionals to assist you with your real estate needs… Experience is Priceless! Jim Valentine, RE/MAX Realty Affiliates, 775-781-3704, dpwtigers@hotmail.com.