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Placing a Winning Bid on a Home Before It Hits the Auction Block

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By June Fletcher, The Wall Street Journal

RISMEDIA, August 1, 2007—Question: My husband and I just came across a house that is up for auction. We loved it! It is a corporate-owned home, and the person who was living in it relocated. This type of home is on the market a lot in our area, and many have been for sale a long time. Would it be beneficial to contact the seller and make an offer before the auction? –Victoria Benson, Front Royal, Va.

Victoria: Make the call.

But first, be armed with all the information you’ll need to succeed. To make sure you don’t encounter any nasty surprises, you need to know what sort of liens (including tax liens) or bankruptcies have been placed on the property, because you might be held responsible for paying them off. You can find this information from a title company for a nominal fee, or for free in the county clerk’s office. While you’re at the courthouse, check the building department to make sure that any work that has been done to the house, from finishing the basement to installing a chandelier, has been properly permitted and inspected. A buyer’s agent also can help you find this information and can help you prepare your purchase offer.

If the terms of the auction allow it, tour the house personally before you make your bid.
Sellers are glad to entertain offers before the house goes on the block. Except in foreclosure cases, most sellers, including corporate ones, have already tried the conventional route. They’ve had to prepare for open houses, endure snarky comments by looky-loos and entertain lowball offers. The fact that they’re now willing to unload the house at auction, perhaps without a “reserve,” or floor price, signals that they’re dead serious about selling, if not a little desperate.

Selling the house before the auction removes the worry that every seller has — even corporate ones — that few or no serious buyers will show up on auction day. It also saves them from having to pay for the hoopla that precedes an auction sale, like brochures and newspaper ads, as well the costs on sale day, like a catered lunch and the services of the auctioneer — costs that typically run a little more than 2% of the sale of the house. (It usually doesn’t eliminate auction commission costs, however, which are similar to those charged in a conventional deal. These costs are sometimes passed along to the buyer).

Though you may get a good deal before the auction, don’t expect to steal the house.

Corporate entities that specialize in relocation have a very good idea what properties are worth and aren’t likely to give you more than a 15% discount — though more might be possible in a market clogged with similar houses for sale, such as you described.

Corporate sellers are also more experienced at negotiation than private owners and know that your pre-sale offer may not be the only one. So don’t be surprised if, after your offer, you get a call saying someone else has come in with a higher bid and are asked if you want to top it — a pre-auction auction, if you will. If you want to avoid this sort of interaction, called “shopping a bid” in the trade, turn the tables: Stipulate that your offer is only good for a very short time frame. (I once bought a condo with an offer that expired in one hour.)

So make your bid and see what happens. If you can’t come to terms before the auction, you can always show up when it goes on the block.

June Fletcher is a staff reporter at The Wall Street Journal and the author of “House Poor” (Harper Collins, 2005). Her “House Talk” column appears most Mondays on RealEstateJournal.com.

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