How in America to buy housing at auction

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When a person wants to buy a house, the first question he will ask himself or a specialist: “Is it possible to do this a bit cheaper than it is usually done?”. Without perennial mortgage and without draconian banking conditions.

In this regard, the Russian-speaking public is increasingly interested in this option of buying real estate, as foreclosure real estate, or "purchase by auction". ForumDaily tried to find out whether it can turn a mere mortal, and how?

What it is?

Auction - (foreclosure real estate) - is the process of sale, and, accordingly, the purchase through the auction of the real estate, which was selected by the bank:

a) for not paying the mortgage (what is commonly called foreclosure);

b) for non-payment of taxes (a slightly different branch of this scheme, which has the name tax lien).

Since part of the value of the house (for simplicity, we will say “house”, although this can be any real estate) has already been compensated (and in some cases this is the majority), the bank or realtor does not take (as is commonly believed) the real value of the house, but offer it cheap.

There are public auctions, there are those that are held behind closed doors, it all depends on the laws of a particular state. Often they are held in the courthouse. This is logical because it is in court that the house is preliminarily taken away from the owner who is in debt.

Also, the overwhelming majority of auction purchases are made precisely for cash, because it is almost always the purchase of a “cat in a bag”, the final price of which is initially unknown.

“This should not be understood in the literal sense: here we come and bring a bag of money. This can be a loan from a bank or a private person, and the word “cash” only means that we repay the entire amount in full. Why does the seller love cash? Because in this case he needs to fill out less paperwork,” explains Michael Antonyuk, an ex-investor and realtor who worked with auction real estate before the 2009 crisis. Michael bought his first home as an investment at age 18 in 2001 for $7 and sold it for $35. This house stood empty for 15 years.

Michael bought his first home as an investment at 18 in 2001. Photos from the personal archive.

Studio for 100 thousand and house for 300 thousand

Starting capital in the form of cash or the amount in the account is necessary so that it makes sense to start searching for an auction house in the state of NY - about $ 300 thousand. For $ 100 thousand now you can find a studio apartment, for example, in Brooklyn, and "mansion" in the Bronx. $ 200-300 is a good single-family home in Brooklyn or Queens, in areas that are stable and even growing. These figures shared real estate appraiser, analyst, BPO (Broker Price Opinion) specialist Natalie Magan.

According to Natalie Magan, for $ 200-300 thousand you can buy a good single-family home in Brooklyn or Queens. Photos from the personal archive.

According to Michael Antonyuk, it all depends on the bank with which you are willing to discuss financing such a purchase. “If an ordinary bank is ready to finance an ordinary purchase of an ordinary house at 4%, then it is possible that it will finance the purchase of such a house at 20%,” he believes.

Michael also states the fact that banks are happy to finance the purchase, if the buyer is a law firm, for example. It is pleasant to deal with a serious client for everyone, business for a small one is to let the others understand that you are the same client.

What do we know about it?

What it is: a) cash, basically, and b) wilder market rules of sale and purchase: since we are dealing with cheaper, but at the same time demanded goods, we should expect higher competition among buyers, as well as any auction.

“In my experience, 90% of buyers, or rather, those people who managed to buy such real estate, are legal entities, that is, financially wealthier and more “savvy” in the processes of such purchases, people who quickly, like crows, pounce on anything white the body of a house taken by the bank and put up for sale. But at the same time, to say that an individual cannot buy such a house would be too categorical. My colleagues and I have seen such people, these are the same 10%,” says Natalie Magan.

Michael is more optimistic - partly because he worked in Pennsylvania, not in New York.

“Auctions in Philadelphia, where I live and work, are held twice a month. I can say with confidence that to buy a house in order to live in it is a design that is doable.

But we must remember that the laws of such auctions in different states are different, and if you are going to start buying a house in a certain state, study how it is usually done there.

As for Philadelphia, then anyone entering the auction, anyone can take part in it, there would be money. ”

Who is the buyer of such houses?

The average buyers of such properties are divided into 2 categories: “buy to live” and “buy to make money”.

With the first part of the questions, I suppose no. The second part is investors who buy to resell or rent, and private traders who buy to sell or rent. These 2 categories differ in the numbers on the accounts, life goals, and transaction volumes: the second volume is wider.

There are several styles of interaction with real estate, for which the previous owner cannot pay, several: short sale (its name does not justify, in reality it is rather long sale, because here people are trying to sell the property on which 2-3 unpaid loans are hanging, and this is usually done not through an auction, but by direct owner-bank interaction), flip sale (purchase for the purpose of resale for other money), rehab sale and a number of business options, which we will discuss below.

Photo zillow.com

Purpose number 1: buy to live

So you just want to live there. Detailed manual: first you go to the site Auction.com and surf it, then explore the Internet base, in each of which you can see the real estate that they are going to expose.

At the same time, you study all the announcements about auctions on the Internet, and what else can be done if you are looking for real estate in areas remote from megalopolises is to go to the area and collect all printed materials in local shops and banks. be announcements from banks about homes and dates of auctions in precisely those places. Then you register in county-bases.

The most popular databases - Zillow, Street-Easy, Redfin. Propertyshark - paid service. Acris - base in New York, where it is convenient to receive data on Manhattan, Brooklyn, Queens, Bronx and Staten Island.

How to use these electronic services: enter ZIP code of the place where you are going to look at the house, enter the address, if you know it in advance, or, after introducing the ZIP code, filter all the property that fell to you by classes: single family, multi family, land, house, etc.

On the sites you can also see what of this class of real estate has already been sold in this area over the past six months or a year. Maps, lists, prices. Condition, size. If in this area a house ago was sold a month ago, similar to the house of your dreams - this is a good source of information for you.

Then you can check the house on the open database. tax records, to get an idea of ​​how much such a house costs in the traditional market and, after seeing all this, the price of, say, $ 300 thousand, is to realize that it is unprofitable to go to 400 at an auction. Or that for the same price you can buy a house in the usual way.

Always keep in mind the options mentioned above. tax sales (tax lien) - when debts for a house are taxes, there is no mogridge in any way, and you can search for just such sales, and the mortgage will not affect you.

According to Michael, one of the advantages of a potential buyer is the availability of direct access to the seller and the realtor who works with specific banks and their auctions. “What can I say: any business has its own nuances. Of course, in such matters it is better to have connections than not to have them, he says, “Your deal will be more successful the more knowledge you have, from strategic, global rules for conducting such sales, to specific houses that can not to be in the databases.”

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Natalie agrees with Michael: “Wherever we encounter a deliberately low price, there is a risk of the existence of some secret scheme caused by the commercialism of other people, which is very difficult to immediately identify, much less prove,” she says. — The closer the price is to fair marketthe more civilized the trade is, it is the law. ”

She considers the main problem of those who want to participate in the auctions of individuals: a) lack of cache and b) lack of connections.

To the question “What are these secret schemes?”, Natalie replies: “The most common: a certain realtor wants to sell the house to“ his ”person for his price, that is, the price is usually understated and unable to withstand healthy competition. What is being done for this: a firm illusion is created that no one wants to buy this apartment. This can be done in different ways: do not repair the house or repair poorly, create a false reputation for it or the area in which it is located, etc. As a result, the bank sees that the house is not for sale and gives it a low auction price. And then this house suddenly buys nephew of this realtor. Or, for example, you want to buy a house that you don’t want to sell. And then your offer at the auction magically ... disappears. "

Michael has never encountered such schemes, and perhaps it’s where the residence and its popularity matter.

Natalie admits that such “tricks” could have occurred during the crisis, when unemployment increased, the number of debtors unable to pay increased, the number of housing “to be released” and people who wanted to “rise” in a crisis situation increased.

“Such things have happened, but now there is a trend towards a general recovery of the market after the crisis of 2007-09, and the healthier the market, the fewer such transactions there are,” she says. True, the higher the prices at auctions. And the closer they are to the real market. The peak of “brazen” sales occurred in 2008-2011.

Ceiling hole

One must understand that if we are talking about foreclosurethen we mean in advance at home in a state far from the traditional "turnkey".

Sometimes before selling the bank insists on the expertise of the house, sometimes not. And if he does not insist - be on the alert. In any case, it would be good for you to at least remotely present the internal view of your future home: sometimes surprises are so ... uh ... unexpected that this is worthy of a separate digest.

“For example, a hole in the ceiling, or rather, the floor,” says Natalie, “the history of whose creation no one will ever know. These could have been the tricks of former residents, but with the same success they could have been the consequences of the very “schemes” mentioned above: someone just really didn’t want this house to be sold quickly and fairly.”

Banks and realtors often use the services of BPO-specialists who have different powers. Some can only evaluate the exterior of the house - and they, like you and I, do not know what is inside, but there is interior specialists, or appraisers - they have something to tell people.

“Sometimes it’s quite easy to identify the case when a house is being “kept for its own people”: for example, it itself is in perfect condition, but there is a broken toilet on the floor and a lot of water is poured around. It’s quite difficult to conclude that this water has been standing here for a couple of years - most likely, it was poured recently,” says Natalie. — In general, it is impossible to assess the approximate condition of the house without going there, and I do not advise you to be prepared by default for any repair and construction feats, sometimes there is Carthage inside, sometimes the windows are boarded up (boarded up houses), and you have no right not only to remove the nails, but also to come close. ”

However, the fact that the house is boarded up is not a reason for panic. Now, if a cross is drawn on the house, anywhere, in chalk or coal - this is a sign of the declassed element living in it, that is, the homeless, and this is a universal sign of the American homeless and a real excuse to worry.

Evaluation from the outside can also be deceptive, including in your favor. For example, after winter, snow, long downtime, the house can look so-so, but inside everything is beautiful.

Sometimes the windows of the house are boarded up and you have no right not only to remove the nails, but also to come close. Photo

External evaluation is based on the overall condition of the visible elements of the object (general appearance, roof condition, gutters, window frames, doors, stairs, a general view of siding or brick, the absence or presence of cracks on the walls or at the base of the house), not limited to glaring boarded up windows, If there are any. Drawings on the walls are not deadly either.

It is on this that a special category of specialists makes money - people who buy houses in disrepair, bring them to a relatively decent state and sell them later on more expensively.

The goal of 2: buy to make money

If you are a realtor, or if you, as an individual, have your own realtor, then these specialists are inclined to watch the bases first of all. Multiply Listing Service where there is access only to holders of real estate licenses. What we see on sites is squeezing out of the MLS.

“At MLS, the bases themselves are wider, the range of prices and the range are also wider. This is one of the reasons why you still want to have your own realtor: MLS is how to get through the back door, says Natalie.

“You have a huge choice,” says Michael, “you can take the path of flipping - buy something at a price below the market price and resell it after some time at the market price, do a type of transaction that experts in their slang call a “rehab” - buy that the very “Carthage”, bring it to mind and sell it as a candy house for the appropriate amount. Rent it out, of course. Buy land or a house for demolition, tear it down and build something new there. Buy a bad mortgage loan from the owner along with the loan object. Repurchase tax debts. This is so you understand, I am only talking about residential real estate. There are also office buildings, commercial, industrial, and wholesale options.”

In memorable times in the USSR, young mothers often arranged to work as nannies in kindergartens in order to be able to attach a child there and personally see that no one offends him. This is what I hint that one of the ways to get your own good home to live is to become a realtor and learn to interact with the system. Of course, this approach is not relevant for everyone, but this is one of the options.

“If you want to get into the world of real estate,” says Michael, “you either need a lot of knowledge or a lot of money. However, the subtlety is that if you have money, but no knowledge, you can make a mistake and lose this money, and if you don’t have money, but have knowledge, then you can find and increase this money.”

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