Last week, I attended a foreclosure auction at the parking garage near an office building in Bellevue. Unlike most condo auctions where you will see a crowd of a couple hundred people showing up, there were only around 50 people attending this auction. Half of them were realtors just like myself trying to get an better understanding of how foreclosure auctions work. The other half were individual investors, aspring investors, and professional group investors assisting their clients in the bidding.
For those of you who are interested in a foreclosure auction, this is how it works. When a bank forecloses on a property, they will hire a trustee (individual or company) to facilitate the foreclosure process. In King County, Trustee sales take place at two locations. One of them is in Bellevue and the other one is at the King County Courthouse in Seattle. They are required to be held in a public place so that members of the public can have access to view the auction. Auctions are held every Friday at 10am and 2pm. You can find a list of foreclosure homes on the USA-Foreclosure website. On this particular day that the auction was held, there were over 200 homes on the list. Three auctioneers were calling out in alphabetical order by the foreclosure owners' names, followed by address and then the minimum bid.
Bidders who are interested in bidding in a particular property will show the auctioneer an envelope which contains their cashier's check and the auctioneer will give the bidder a bid number. The bidding begins and the bidders are required to speak out the full dollar amount they are bidding. If you are the highest bidder, the trustee will prepare a trustee deed transferring title to you. Foreclosure auctions run really fast. If you missed the property when it's called, they may become unavailable for bidding unless the auctioneer repeat the whole list again. The unsold properties revert back to the bank and become bank-owned properties. They usually go back on the market a few weeks or months after the auction.
Typically, 10-12% of the auction properties are sold but that varies with different counties. Foreclosure properties can sometimes be sold for anywhere between 20-50% below market value. Most investors try to aim at not paying more than 70% of the value for a property. Sounds like a good deal right? Well, there is risk involved in buying foreclosure homes. First of all, they are almost impossible to inspect. So there could be unknown repair that you need to fix, costing you more than you're willing to pay. There could also be outstanding liens that you may not be aware of that shows up after you bought the property. Sometime, if you have your eyes on a particular home, the auction might get postponed, which can be frustrating as you may already invested time and money.
I met Phil, a nice gentlemen at this auction. Even though he was here to observe the auction for the first time as an individual, he had already purchased three foreclosure properties through a professional investor group. His plan was to either flip them or rent them out for long term. If you don't have the financial resources like Phil does, you can try obtaining short term loans from hard money lenders, although their fees are much higher than conventional loans. (E.g., 4 points and 12% interest rate). Since many buyers do not have the up front capital to invest, this limits competition and makes foreclosure very attractive to investors with liquidity.
So, foreclosures are not for everyone. It's more suited for you if you're not too risk averse, have the financial resources, and are a good listener (if you're doing it solo). Here is my advice if you're interested in buying a foreclosure property at auction:
2.) Hire a professional group investor or attorney to help you
3.) Observe a few auctions before bidding
4.) Be prepared to pay cash (cashier's check)
For more information about Seattle condo foreclosures, feel free to email your questions to firstname.lastname@example.org.