Foreclosures: Buying at Auctions vs Buying REOs

October 28, 2009

I’d been meaning to write a post on this topic for awhile and while allowing myself to be distracted doing something else I came across this post from a houston real estate broker named Erion Shehaj. Erion does a great job of elucidating on some of the reasons why it is much safer for 99% of the people reading this post to buy REOs.

So instead of spending my time writing this article, let me just say “Ditto” to everything Erion mentions.

Is there a flip side to the coin? Of course, and in the interest of being fair and balanced let me briefly touch on why you would want to buy at an auction. Before proceeding you should only even be reading this section if you have enough cold hard cash to purchase properties for hundreds of thousands of dollars without financing or can get people with that type of money to trust YOU with that much of their money.

  1. In the October 2009 Los Angeles Real Estate market it is ridiculously difficult to get your offer accepted. Any decently priced property is going to be virtually impossible to get an accepted offer on (watch this video for a good poke at the situation). This can get frustrating fast. There is 0 transparency in the buying process you may have had the highest offer and even best terms and still not win. You’d think in this day and age of information access that wouldn’t be the case but a seller has the right to sell to whoever they want and I don’t think that should change. When you buy at an auction everyone is offering the same terms and the only thing that matters is who is willing to pay the most. When you walk off the courthouse steps that day, you leave with the answer to that question.
  2. Alot of people want to employ the path of least resistance road to Real Estate Riches. Ward Hanigan of Innovest once taught me that “What’s hard is Good”. If you have an MBA you call this a “Barrier to entry”. Buying at auctions means way less competition since most don’t have the cash to play this game. If you do have the money you need to get with Ward before you buy, you’ll save more than just money. Less competition usually means better buying opportunities. Cash heavy buyers are getting great deals at auctions these days all over the country. It is common for banks to cut the opening bid at the auction with no notice. I’ve seen this happen first hand. Read this post from Sean O’Toole from Foreclosure Radar with some stats about how often it happens and the depth of some of the discounts

The choice is yours, but Carpe Diem!

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