ROI formula to getting your client the most at real estate auctions

Real estate auctions are held online every day in cities and counties throughout the United States. Properties once sold in person at the Courthouse steps and on-site at properties are now auctioned online. While buyers view these sources of properties as generating deals, agents must advise their clients with regards to potential pitfalls.

Thousands of properties are being auctioned off daily via County auction websites, Hubzu.com, Auction.com, Homepath.com, HudsonandMarshall.com and numerous other sites. It is important as an agent analyzing deals on these platforms that you familiarize yourself with the bidding platform and the particulars of the auction concerning properties which your clients are interested in purchasing.

Whether your client is a seasoned investor, or a first time home buyer, it is imperative to pay attention to the following variables:

Auctions require a deposit in hand

Pay close attention to when deposit monies post and make sure to advise the client accordingly as to timelines and required deposits. You want to allow ample time for clients to make the necessary financial arrangements and for them to deposit sufficient monies to cover all bids, and then some.

Even extremely liquid investors must make arrangements to have cash available. This requires meeting certain deadlines of financial institutions, and also allowing for the deposit to post on the auction platform. You want to make sure you allow breathing room, otherwise you, and especially your client, may miss out on a great deal!

Auctions fuel bidding wars

Sometimes bidders wait months for an asset to come online. In Miami-Dade County Auctions, the screen turns green and excitement comes over those gathered around the bidding computer. It is imperative as an agent to advise your client to stick to the values you have advised and not allow their competitive spirit to take over.

Understand payment terms

The balance to close may be required in cash, or cash equivalent. Traditional checks may not be accepted and funds may be due within hours in some instances.

[Tweet “Auctions can require cash funds to be due within hours”]

For example, in Miami-Dade County, Florida, the Clerk of Court begins auctions at 10:00 a.m. and the remaining funds are due by noon the next day, failure to tender by noon results in the bidder forfeiting their deposit. Indian River County, Florida meanwhile, has an even stricter deadline, requiring payment by 2:00 p.m. on the same day.

Beware of the buyer’s premium 

In addition to traditional closing costs, some sites add a buyer’s premium to the winning bid that increases the amount of the “bid” after the bidding has closed. A $100,000.00 winning bid with a 5 percent buyer’s premium will result in $5,000.00 being added to the bid amount (or closing costs).

Purchase a first lien position 

It is imperative that agents and their client have attorneys or title agents review title for the property and any contract terms. In the case of foreclosure judgments, you will want to make sure your client is purchasing a first lien position. In the case of auctions of Bank Properties, you will want to make sure that the Lender is not passing on certain violations and liens which may be accumulating daily.

Determine who is responsible

As an agent you want to inspect the property and determine whether the winning bidder is assuming responsibility for removing the occupants. While disturbing the occupants is not allowed, you will want to drive by the property and look for signs as to whether the individuals in possession have any intention of vacating the property. Advise your client with realistic timelines and costs involved.

Know the post-auction obligations

Property taxes, utility bills and assessments are sometimes not available at the time of auction or are not paid from the auction proceeds. These become the responsibility of the winning bidder. For example, water and sewer accounts for the property may be delinquent in the name of the previous owner and service may not be reconnected in some municipalities until the accounts are brought current. You will want to advise your client that they may have to pay a $500.00 water bill left behind by the previous owner.

Learn about the community

Some properties are located in communities with strict rules or exorbitant fees. For example, in golfing communities, neighboring houses are very popular but are subject to large one time or yearly fees. Understand your clients’ need and make sure that the carrying costs of owning a property in certain communities will meet your client’s goals.

The key to success purchasing at auctions depends on analyzing these variables and adjusting your purchase price accordingly. Failure to do so my result in a poorly prepared client or one who has overpaid for a Pandora’s box of liabilities. 

The Law Offices of Jonathan J. Alfonso, P.A., JJA Law, is a boutique law firm. The firms founding partner, Jonathan J. Alfonso, Esq., focuses on representing clients with regards to real estate investments. JJA Law has the in-house ability to target, underwrite and acquire real estate assets from foreclosure auctions, in addition to representing clients on all real estate related matters ranging from title closings to real estate related litigation. Mr. Alfonso is also a Governing Board Member of the Miami-Dade Association of Realtors, currently serving on the Young Professionals Network Leadership Board.