If you are observing an auctioneer pattering a foreclosure sale property to a group of poker-faced bidders, at some point you may realize that the auction has ended – but who bought the property? Everyone is expressionlessly ticking off a clipboard list, updating a tablet or laptop, or muttering into a mobile phone … even the auctioneer gives few clues as to what has become of this property. So who are the buyers of foreclosure auction properties?

There is a very good chance that no one bought the property, even if there were bids. The foreclosing lender typically sets a reserve price below which they will not sell. The bidders may or may not know what the reserve price is, but the auctioneer certainly knows.

If the reserve price (also known as a “jump bid” by the lender in the trustee sale business) is not met – and a great many foreclosure auction properties get no bid at all – in most cases the lender takes title to the property. Of course the lender intends to use the reserve price to limit their loss in case there are bids. But the reserve price is a source of frustration to auction buyers who wisely stop bidding beyond the good-sense price, based on their own due diligence determining the ARV (market price) of the property in top condition, and what they estimate the rehab will cost.

Many of the bidders work for professional bidding services, and are representing a client buyer who may not attend the auction at all. Professional bidding services offer buyers information on properties, and then assemble their clients’ instructions on bidding prices for the properties the client wants. I recommend using a good professional service if you want to buy at foreclosure auctions.

Other bidders are likely to include real estate investors looking for a wholesale or fix & flip project, or a rental investment. However, some investors use professional bidding services to save their own time.

Occasionally a homebuyer who intends to keep and occupy the property attends a foreclosure auction in hopes of getting a very discounted price. This can be a risky proposition as there are many pitfalls for less experienced auction buyers, as I explain in my post “Beware the Pitfalls of Buying at Auction“. And, homebuyers may be bidding emotionally and pay so much that, after repairs, they will have paid more than market price.

I buy many of my investment properties at foreclosure auctions. However, I strongly advise my students that foreclosure auctions are no place for first-timers without expert guidance, due to the extremely costly pitfalls of auction buying. Enlist the aid of a mentor as well as using a bidding service, learn all you can about foreclosure auctions, and explore the opportunities for real estate investors in the world of foreclosure auctions!

How have you prepared for bidding at a foreclosure auction?

Check my other foreclosure blog posts –

Finding Foreclosure Auctions

Beware the Pitfalls of Buying at Auction

Five Costly Rookie Mistakes in Property Auctions

The Top Ten Reasons to Use a Bidding Service When Buying Properties at Auction

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