We've just completed our first round of bidding on foreclosed houses in the county that I talked about in this post.
There are a few websites that allow qualified buyers to bid on foreclosed properties at great prices. We all know the thrill of online shopping. This is competitive online house shopping. It is awesome. Although we're buying houses with other people's money, I treat every dime as though it were my own, and people, I am stingy.
During the first session, 5 of us sat around a table with a laptop, a pile of appraisals, lists of target houses, color-coded maps of the county and a mandate to buy homes for at least 10% off the listing price. To come up with our bid price we poured through inspection reports and appraisals. We argued with each other about whether the comparables were any good and we plied through our memories to pull up images of the neighborhoods.
There are various rules for the bidding. The longer the house has been on the market, the lower you can bid with a hope of being successful. A house that has just become available will carry the lowest discount even if it's no good. This means you can be presented with a shell needing a gut renovation that lists for $100,000 and your bid for $20,000 won't be accepted as a matter of course because it's new to the market and the seller won't consider anything less than $90,000. On the other hand, a relatively intact house that has been sitting on the market for three months might sell at a 70% discount.
The auction is also conducted sealed bid style. You only get one bite at the apple. If you bid too low and someone else outbids you, you can't go back and increase your bid. You also don't want to bid too high, win the auction, and go out like a sucker who now has to either lower the rehab budget or sell for a higher price. The seller can also decide not to accept any of the bids if its reserve price isn't hit, and of course, we don't get to know the reserve price. Our entire strategy hinges on getting very low acquisition prices but we can't bid so low that we shut ourselves out of the market.
One unimpressive house came up that the Seller listed for $41,000. I remembered touring that neighborhood. It was riddled with For Sale signs and the house needed a lot of work. If we bought that house, we'd be competing with all the other for sale properties, bumping up against the rentals, and generally be killing ourselves with disposition of the completed house. So I yelled out that the seller has got to be crazy and I wouldn't give him a dime over $20,000. Everyone just kind of looked up from their papers and maps and stared at me. "Oh. Too much? I'm chill." And we moved on to the next house.
I love the bidding. It's a rush like playing the scratch-off lottery, bargain-hunting, and being a contestant on Price is Right all at once. Except if we don't win a fair portion of these bids, we won't just go back to the status quo of our everyday lives. If we don't win bids, we won't be able to purchase enough houses to meet our goals and deadlines. If we don't meet our goals and deadlines we'll lose the grants. If we lose the grants, I'll lose my job and my house will be next foreclosure up for bid. So yeah, it's kind of high stakes.
I think we'll be all right, though. I chose the bid price for a house just before I had to leave the room to take a call about loan documents (yawn). We won the bid! It was such a rush! I flexed the matrix right there in the office (which I do about once a day anyway-- the flex is at minute 1:47). Now the due diligence begins and soon we'll have a house!
There are a few websites that allow qualified buyers to bid on foreclosed properties at great prices. We all know the thrill of online shopping. This is competitive online house shopping. It is awesome. Although we're buying houses with other people's money, I treat every dime as though it were my own, and people, I am stingy.
During the first session, 5 of us sat around a table with a laptop, a pile of appraisals, lists of target houses, color-coded maps of the county and a mandate to buy homes for at least 10% off the listing price. To come up with our bid price we poured through inspection reports and appraisals. We argued with each other about whether the comparables were any good and we plied through our memories to pull up images of the neighborhoods.
There are various rules for the bidding. The longer the house has been on the market, the lower you can bid with a hope of being successful. A house that has just become available will carry the lowest discount even if it's no good. This means you can be presented with a shell needing a gut renovation that lists for $100,000 and your bid for $20,000 won't be accepted as a matter of course because it's new to the market and the seller won't consider anything less than $90,000. On the other hand, a relatively intact house that has been sitting on the market for three months might sell at a 70% discount.
The auction is also conducted sealed bid style. You only get one bite at the apple. If you bid too low and someone else outbids you, you can't go back and increase your bid. You also don't want to bid too high, win the auction, and go out like a sucker who now has to either lower the rehab budget or sell for a higher price. The seller can also decide not to accept any of the bids if its reserve price isn't hit, and of course, we don't get to know the reserve price. Our entire strategy hinges on getting very low acquisition prices but we can't bid so low that we shut ourselves out of the market.
One unimpressive house came up that the Seller listed for $41,000. I remembered touring that neighborhood. It was riddled with For Sale signs and the house needed a lot of work. If we bought that house, we'd be competing with all the other for sale properties, bumping up against the rentals, and generally be killing ourselves with disposition of the completed house. So I yelled out that the seller has got to be crazy and I wouldn't give him a dime over $20,000. Everyone just kind of looked up from their papers and maps and stared at me. "Oh. Too much? I'm chill." And we moved on to the next house.
I love the bidding. It's a rush like playing the scratch-off lottery, bargain-hunting, and being a contestant on Price is Right all at once. Except if we don't win a fair portion of these bids, we won't just go back to the status quo of our everyday lives. If we don't win bids, we won't be able to purchase enough houses to meet our goals and deadlines. If we don't meet our goals and deadlines we'll lose the grants. If we lose the grants, I'll lose my job and my house will be next foreclosure up for bid. So yeah, it's kind of high stakes.
I think we'll be all right, though. I chose the bid price for a house just before I had to leave the room to take a call about loan documents (yawn). We won the bid! It was such a rush! I flexed the matrix right there in the office (which I do about once a day anyway-- the flex is at minute 1:47). Now the due diligence begins and soon we'll have a house!
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