Real Estate Investment Series
 

Real Estate Auctions

Buying Homes at the Court House Steps


Approximately 70 percent of the homes sold in South West Florida are sold for cash or are deals involving a bank or the court house steps (now may courts do this on line).  It therefore stands to reason that Market America Realty and Investments, Inc. has spent time becoming experts in these fields. If you are interested in buying a home in South West Florida chances are very good that you will become involved in a SHORT SALE, an REO, or buying at COURT AUCTION. In each of these cases, as indeed in life – KNOWLEDGE is POWER. The more informed you are about the processes the higher your chances are of success.
To improve success at Market America Realty we have immersed ourselves in these arenas. At the company we have the following profit centers:
·         Retail - Conventional residential home sales
·         REO’s – The direct selling of foreclosed property now owned by the financial institutions
·         Short Sales – The representation of sellers that need to sell their homes below what they owe on their mortgage.
·         Court House Sales – Representing buyers that wish to buy from the court system at auction
·         Commercial Sales and Leasing
·         Residential Leasing
·         Property Management
What I would like to talk about today is Court House Sales. To read a review of the short sale process click here or go tour new website www.marketamericarealty.info.
I also have written an article in the past about how to buy an REO – to go to that article click here.
Knowledge is power  – Investors make money when they buy, not when they sell.  When the buying decision is made the investor is in control, when he wants to sell, the buyer is in control. This is why it is so important to be an informed buyer, and this is doubly true at the courthouse.
There are about 80 homes a day auctioned off on line for the Lee County Court System. Most of these homes will be taken back by the bank. The new on line system is actually making a smaller percentage of auctioned homes available for actual auction to the public. Because of time constraints in getting the homes into the on line system, the banks are less likely to be prepared to let these homes go at less than the judgment amount.
Market America Realty has, two weeks before the auction date, a summary of all homes that are SCHEDULED to be auctioned in both Collier and Lee Counties. We know the judgment amount, the attorney involved, the name of the debtor, and all  publicly available information which includes the address and a photo of the property. If there is a property that is of serious interest, we perform a BPO (see Blank Sample Here for your use) take a series of fresh photographs and order a title abstract. (We perform this service for a fee for our clients. If you would like to discuss this email me at GFous@marketamericarealty.com)
The title abstract is important because this will tell us if there are any liens that will not be discharged at the foreclosure such as IRS liens or other government liens. A well preformed BPO will give us an indication of the market value of the property.
There still are things that cannot be positively determined without a visit to the property such as the presence of defective Chinese drywall, whether or not the appliances and air conditioner are present or if the home has been vandalized. In most cases the interior of the home cannot be inspected at all unless the house is currently listed for sale. A personal visit to the home is conducted, an occupancy check is performed, photos taken of the home and neighborhood, and a property status report is generated by our REO specialist. Neighbors or tenants are interviewed when possible. The BPO is generated and a photo addendum sheet is attached.
The age of the home may place the incidence of bad drywall high, and if the home falls into a suspect date and builder class, we will assume that it has the bad drywall, absent of any contrary evidence.
It is foolish and a gamble to bid at auction without any prior knowledge of the home. I will tell you that it is done every day, however.
Some, but not all of the things that you may run into:
·         No appliances
·         Code violations ( pools, fences, electric,  illegal additions or improvements)
·         Pests (Wood destroying organisms, rats, bees)
·         Evictions required for squatters or previous tenants.
·         Foreclosure errors in straps, boundaries, address of the home
·         Stolen copper, in-operable wells, mechanical issues
·         Defective Chinese Drywall.
I will tell you that we have seen all of the above – and while you may try to determine all the potential problems, I am sure there are some we have not seen yet. Buying at the courthouse is risky and even with all we do for our clients, all we do is lower the risk, we do not eliminate it or guarantee success.
Once we have possession of the home our asset management process kicks into action. We handle about 30 homes a month through the process of evaluation of value, arranging improvement for the home, and putting it back on the market. Our system generates weekly inspections, ordering of utilities, potential code violations, and general maintenance of the home to community standards. Most of these homes are generally on the market for no more than 60 days if the goal is to sell. About one third of the homes we acquire for clients are put into a rental program or are occupied by the buyer.
Buying at the court house step can be rewarding. But please: Be Prepared.  Remember, knowledge is Power
 


SOLD! (insert sound of gavel) To the Highest Bidder – OR is it?

 

The Inside Scoop at the Auction

The REDC auction came to town last week.  Heavily advertised and promoted, REDC was auctioning off a few hundred homes in Lee and Collier County at Harbourside Event Center in Historic Downtown Fort Myers, just across the street from the Market America Realty and Investment Group offices. (We now have two offices on Dean Street – the headquarters and Commercial and REO  offices  in The Dean Building and our retail offices across the street.)

I attended the Auction with my brother Bill, Nils Richter, manager for our REO division, and Ty Wespiser,  High Rise and short sale expert and one of the top agents for Market America Realty.  

I arrived early with cashiers check in hand and registered to bid. In the lobby while registering I ran into Dick Hogan of the News Press, former Cape Coral Councilman and avid real estate investor Tim Day, Kemp Deming of Continental Realty Group,  and a few other guys I have run into at the courthouse. The auction was to kick off at 6:30 but at 6PM the hall was relatively empty.  My initial impression was that it was poorly attended and there were not many people I knew in attendance. Sprinkled throughout the seats were what appeared to be husband and wife couples,  and a few serious looking bidders.

After registering, I went back to the office to finish up a few emails before the auction started. (By the way – you can attend without registering, but I was planning on bidding on a few homes).

Market America Realty is now handling about 100 assets for various banks.  Some of the assets we are handling are Fannie Mae homes; four of those Fannie Mae homes were selected by the banks to be placed in this auction. For the past two weeks we have been holding these homes open for inspections. We had two in Cape Coral and two in Lehigh Acres.  Four of us worked two weekends in a row – for a total of about six visitors to all the homes (not a very good return on our time).

Before the auction I was a bit puzzled. Understand that we know when someone asks to tour one of our listings. The visitors are logged and recorded either by our Client Services Coordinator or are booked by other brokers through a service called E-Showings. I knew that the number of showings for these four homes was very low and the open houses were very poorly attended; so I was wondering how people would bid on our listings sight unseen. Then after talking to some folks at the auction, however,  I realized that the pros knew the lock box codes for most of the banks listings and never made appointments. They would just show up, use all the codes they knew, and generally one would get them into the home.

A few months ago I wrote a rather thorough article about preparation for Auctions (Click HERE.  If you click that link you can go to links for various auctions.)  I have talked before about informational advantage and the ability to trade on that advantage.  Never was this more true than at an auction.

At the Auction, the REDC reps dress in black tie – presumable to give them an air of respectability.  But make no mistake, if you do not do your home work – you can make a very large and expensive mistake a and the system will take advantage of your lack of knowledge.

Here are some things you need to know:

·         There is no inspection period. If you are the winning bid, you must buy.

·         If there is defective drywall, that’s YOUR responsibility to determine this before the auction.  They operate on a “don’t ask, don’t tell” mentality.

·         THIS IS NOT AN ABSOLUTE AUCTION!  This means even though the literature lists a minimum bid, the sale will not go though until the seller approves the price. (It’s now Sunday, and we still do not know if our homes actually sold on Thursday)

·         I heard the auctioneer say that such and such home was financeable, even though I knew a home to have defective drywall, which generally means IT IS NOT financeable.

·         Many of the homes have no appliances, no air-conditioning, and other unique features that are disclosed in the MLS listing but not at the auction.

·         There is a $2500 minimum buyer’s premium. This means if your winning bid is $50,000, you will pay $52,500.

I wound up bidding on two homes – but not getting them. One of my friends next to me was prepared to bid on six homes.  He finally was winning bidder on one.

One home I was bidding on (for a client) had been on the market for 70 days at $53,900. Three bedroom, two bath, no appliances, no air, and some kitchen damage.  I thought that I could sell it fixed up for $50,000.  I advised my client to pay no more than $30,000

Here is the math:

Sell price                              $50,000

Purchase Price                  -$30,000

Auction Premium               -$2,500

Selling Costs                         -$3,500

Repairs                                   -$5,000    ($11,000 subtotal on costs)

Margin                                    $9,000

 

Assuming I could turn this for my client in 90 days, and my budget was correct, this would have been a great return on an investment of $41,000 (87%).

 

The gavel came down on this home at $37,500, so with the $2500 premium it would have cost him $40,000, and his margin would have only been $1,500, which is why I did not buy it for him.

 

For the end user this would have been a fantastic deal, but not for the investor.

 

I will not attend the next REDC auction, but will watch it remotely if there are some homes I want to buy for clients.  We had an interesting experience that night. When the Naples homes came up in the auction, we calculated that we had 45 minutes to take a break before the Lehigh homes came up, so three of us left and went over to H2 to have dinner. By signing in remotely via iPad onto our computers in the office, we were able to watch live action (and bid), right at H2, with cold beer in hand – much more comfortable that sitting at Harbourside.

 

The auction is a good place for end users that have done their home work to buy, but for investors – not so much. The main reason is that the sales prices is absolute. It is tough for me to justify all the preparation work, be the winning bid, and then still not get the house.

 

Just my two cents worth!

 

Gregg Fous