It seems like you can’t pass a country courthouse these days without observing the spectacle of a public auction of foreclosed properties taking place on the front steps. The scene is unmistakable and so familiar now that it is becoming etched in the American consciousness as a snapshot of the times we live in. The scene consists of a small crowd of mostly men and some intrepid women congregating around a haggard trustee. The trustee will loom over this eager yet tense congregation, presiding over the auction, pitching each lot with the fading attention of a small time circus ringleader who has grown weary of his work. And there is no end in sight as the housing market continues to tank.
Bidding on real estate, especially distressed or foreclosed properties, is a macho sport. With its show-me-the-money policy, these transactions smack of the Wild West where cash on the barrel head was the order of the day. To acquire a property where the debt load sank the previous owner, there are no handshakes, non-binding contracts or contingencies, just good old cash. If you suggest some sort of creative financing structure when bidding on real estate, the trustee will give you the evil eye or simply laugh in your face.
And yet, bidding on real estate foreclosures is an essential part of the economic recovery. Though it seems opportunistic and conjures images of scavengers and bottom feeders, it’s a critical part of salvaging the market. Bidders pay cash for a property and with each completed sale, there is one less house bloating the inventory numbers and messing up the note holder’s balance sheet. The sooner the slack in the market can be taken up, the sooner the housing bust will be a thing of the past. And that’s a good thing for everyone.
To be a successful bidder at a public trustee auction, one needs to be ready to pull the trigger and part with a nice chunk of money at the drop of a hat. He who hesitates is lost. If it’s your own money and you blow it, at least you won’t get your thumbs broken. If you are acting as agent for an investor, you need to possess a fearlessness that insulates you from the wrath of an unhappy client.
It can be a real pressure cooker situation trying to win a bid but not be left holding a booby prize. There are decisions that have to be made in the blink of an eye. Do I buy and flip? Do I buy and hold? Do I buy at all? Bidders need to know the neighborhood. They have to research and understand the extent of other distressed properties there and the pros and cons of living in a particular neighborhood or street that impacts desirability and housing prices. Bidders don’t get to see the inside of a property and must appraise its potential from the view from the street. Leaky pipes, broken appliances, bats in the attic or any other warts or expensive surprises are not made known before purchasing.
It takes a combination of instincts, experience and a few hard lessons learned to be successful. If you haven’t got the stomach for it, you need to find a new line of work. Public auctions serve an important function in turning the economy around, but they are definitely not for wimps.
