Learn About Foreclosure Auctions, How to Bid and Whether to Hire an Agent
Hudson&Marshall has auctioned more than 8,000 foreclosures on a national basis during a two year time period. They are qualified to conduct regular and foreclosure auctions in every state in the nation and have done so in most. Their client list is quite impressive; it includes Bank of America, Bank of New York, Chase Bank, Freddie Mac, Wells Fargo Bank, CitiFinancial and so many more. Since they are the premiere auction house, below we have detailed the steps in bidding and buying at a Hudson&Marshall Auction.
I would strongly suggest that you hire an agent who is an expert in the auction process before you start. The banks pay the agent’s commissions and it literally costs you nothing, but could save you thousands. As well as helping you research the properties, the agent can help you determine a maximum bid price for each property you are interested in and make sure you don’t get caught up in the buyer’s frenzy!
Here is how to bid on Hudson and Marshall auction properties:
- Ways to bid on the properties:
- Pre-sale/Resale form – prior to property auction. This form will usually have a cut-off date several days prior to the auction.
- Sealed bid form – could have a deadline.
- Absentee bid form – must be submitted by 1:00 PM CST on the business day before the scheduled auction.
- Attend Auction and bid – show up in person at the auction and register as a bidder.
Most of these properties were previously listed on local MLS systems. Note that once the properties are with the Auction house you cannot put an offer on the property through the bank or listing agents. If the properties are not sold at the Auction, Hudson & Marshall will accept post bids on the property for approximately 15 to 30 days after the auction before the properties are turned back over to the listing agent.
- Prior to the Property Auctions, you should preview the property. There are usually two open houses prior to the auction. It is the listing agent’s responsibility to have the homes opened to the public. I have, however, found in the past that not all of the homes are held open. In markets with lots of foreclosures, there are not enough agents working with the listing agent to be able to hold the homes open. Your buyer’s agent should be able to gain access to all of the properties before and after the open house if that is the case.
- After you find the home you want to bid on, you should have the home inspected. These properties are as is/where is. If you are not paying cash and you are financing the home, you must remember that the lender may not finance based on the condition of the home. Hudson and Marshall are only accepting cash and conventional loans. FHA and VA will not be accepted.
- When picking out more than one home, the homes are put on the Auction Block in accordance with the brochure. If you choose 2 or more homes, the home you really want may be one of the last ones listed in the brochure. Please be advised that if you bid on more than one home, and more than one bid is accepted that you have obligated yourself to purchase all of the homes on which bids have been accepted.
- Your real estate agent should:
- Make sure that the comparisons for the properties are done and that you as the buyer are getting a good deal.
- Make sure that the property does not have a rental cap if you are investing in the property to rent out later. It takes about 5 working days to get that information, as the agent will have to go through the Homeowner’s Association. This is especially important on Condo/Townhouses.
- Make sure that you get a preliminary report or property report on the property. You need to make sure that the property is not in any litigation.
- Discuss your offer price – you will have a start bid price and a maximum bid price. It is very important that you do not bid too high. You do not ever want to bid over 5% less than the listing price. (The listing price may change 2-3 days prior to the auction – the price usually drops) Any property that your agent knows that you are interested in will need to be researched the day before the auction.
- Preparing for the Auction:
- Find property.
- View property.
- Pre-approval from lender (not a pre-qualification letter), conventional loan or proof of cash.
- Have agent do their due diligence.
- Come up with a starting bid and a maximum bid.
- There is a 5% buyer’s premium that will have to be added to the offer price.
Example: Your accepted bid is $200,000 + buyer’s premium $10,000 = total purchase price of $210,000. This amount can be financed depending on lender.
- There is a 5% Earnest Money Deposit (NOT TO BE MISTAKEN FOR THE BUYER’S PREMIUM) $2,500.00 cashier’s check, remainder of EMD in personal check.
Example: Total purchase price $210,000. $2,500.00 cashier’s check + $8,000.00 personal check = $10,500.00 total EMD.
- Register at the auction:
- You will need to register one hour before the Auction. You will need proper ID, social security number and a cashier’s check for $2,500.00 made out to yourself. You will show the cashier’s check, but you will only use the check if you have an accepted offer. The check is not rendered to the Auction House until you are in the contract room with an accepted high bid. This money will be used for part of your Earnest Deposit Monies. The remainder of the EMD can be in the form of a personal check. If you are purchasing under a business, you also will need to provide a Federal ID number.
- When registering, you will check the box: “I have an agent”, and give them your agent’s business card. If the business card has been misplaced, give them your agent’s name and notify the agent. You will need your agent upon entering the contract room.
- You will receive a bidder’s registration number; this number identifies you as an eligible buyer.
- In the auction:
- Find a seat. The seats are on a first come basis
- There will be assistants to the Auctioneer in several sections of the room. They are called ring persons. Your agent should let them know which properties you are bidding on.
- When your property is on the auction block, you will start bidding. There is a clause, in small print in the brochure that states the auction house and the sellers can bid against you. This is a very common clause with all auctions.
- Once your offer has been accepted, a ring person will approach you for your bidder card. They will have you sign a card with your high bid. You will be told when to report to the contract room. (Do not go to the contract room without your agent.)
- The process in the Contract Room:
- You will be asked if you have previously viewed/inspected the property. The answer should be yes.
- An employee of the auction and your Real Estate Agent will review the following:
- Purchase and Sale Agreement
- Exhibit B (Liquidated Damages Provision)
- Exhibit C (Real Estate Disclosure Addendum and Release)
- Exhibit D (Addendum to Contract of Sale)
- Signed duties owed form
- Waiver of Sellers real property disclosure (SRPD)
- Once all documents are verified, you will submit Earnest Money Deposits checks.
- You will have 30 days after the executed contract to close. If you do not close in this time period you will have to pay a per diem for each day after your original close date until you close, or you may lose your earnest deposit money.
- After the contract room:
- Executed contract means the seller (bank) has signed the purchase agreement.
- Escrow is opened. (Earnest Money Deposit checks are cashed now.)
- Title search begins.
- If there is a Home Owners Association, you will need to purchase a resale packet. Your agent will notify you of the cost and order the resale packet. This fee will need to be paid prior to ordering and prices will vary.
- Things that may delay closing: HOA dues, liens and other potential complications may hold up the closing date after house auctions. This is common. In this case, the sellers will be required to pay off all demands (liens). Once these items are satisfied, the property will have a Free and Clear Title and you can close escrow.