If you’ve been in the real estate game for any length of time, you know about auctions. The Sherriff or other government entity uses them as a way to sell houses after a foreclosure period is over.
Investor opinions vary on the success you can have with ‘courthouse step’ auctions. One thing is for sure: Those government auctions would probably be a lot easier and more effective if:
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They were run by the private sector; and
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They were run online instead of making you show up on a certain schedule.
eBay has been selling real estate online for a number of years, but there aren’t a ton of good properties and they are from all over the U.S. It’s difficult to find a good deal that is in an area that works for you.
eBay is not a site tailored to real estate investors. It is an auction site for everything. And when you try to auction everything, it’s difficult to be great at all the niches.
Getting Closer to Online Real Estate Auctions the Right Way
After the banking crisis of 2008, some mortgage companies were buying up lots of sub-prime mortgages, including a company called Ocwen.
Ocwen owned a mortgage-servicing company called Altisource. Altisource finds technology and process solutions for mortgage companies to streamline and produce better results. One idea Altisource had was to help liquidate some of those properties through an online auction site. They came up with GoHoming.com…
Recently Go Homing became Hubzu.
Hubzu is where you can find properties in your area – ready for investors to purchase and rehab. Many of the properties are foreclosures or bank-owned REOs.
There are 3 ways you can pick up properties on Hubzu:
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As an auction where you bid during a certain time period
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A ‘Buy It Now’ listing that a seller wants to sell right away
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A traditional listing where you submit an offer and negotiate with the seller
You can tell if it is an auction or a traditional sale by the orange ‘Place Bid’ (Auction) or ‘Make Offer’ button right by the listing.
For auctions, the seller can choose the length of the bid from 1-4 weeks. There is also an option for sellers to do a 3-day auction prior to the property being listed on the MLS.
Each property on the auction site has a reserve price for the property. If the reserve is not met, the owner still has an option to negotiate with the highest bidder.
Bidders can also check a box when they bid that allows them to keep their bid as a backup for a certain amount of time, as designated by the bidder.
Many of the auctions don’t have their reserve met. So they might come back after a little while at a lower price.
The bidder can also set their bid as an ‘Auto Bid,’ much in the same way eBay does it. That way, you can sort of ‘set it and forget it.’ Plus, it helps prevent ‘auction fever.’ By putting a highest bid in before the auction gets to that point, you won’t become emotionally involved and bid too high.
Properties that are bank-owned or in the middle of a short sale may also require additional approvals before the highest bid is approved.
The seller can determine what kind of terms they will accept. With traditional home sales on the site, terms can be negotiated just like buying homes from the MLS.
Actually every home bought on Hubzu can have its terms negotiated. But generally, the auctions show whether the seller will accept financing or wants cash only. If they seller will accept financing, make sure you have a pre-approval letter ready to go when you bid on the property.
But I’m Not Going to Buy a Property Just from the Pictures
Neither would we.
And with Hubzu, you don’t have to. Many of the properties allow you to inspect them prior to purchase. Only bank-owned properties with occupants in them are off limits for getting in them prior to the auction. But all sellers can specify what kind of inspections are allowed.
Inspections can also happen prior to closing once the bidding is complete on the auctions. If someone wants to buy a property in a traditional sale, then the inspection is very negotiable.
Hidden Costs of Real Estate Auctions
You can find a good deal on Hubzu. But a good deal can turn into a bad deal very quickly if you don’t consider all the costs.
Hubzu has some serious costs:
Besides an earnest money requirement that can be pretty typical with most traditional home sales, there is a ‘technology fee’ of $299 (as of the writing of this lesson).
Then, Hubzu will also hit you with a ‘Buyer’s Premium’ of $625 or 4.5%, whichever is higher. That means for every $100K you use to buy a home, the fee is $4,500.
Something else to consider… even though this is an auction site, there are still real estate brokers involved. There is usually a seller’s broker, and buyer/bidder can have one too. Or not.
Yes, the seller will pay the agent’s commission out of their proceeds. But that will make the seller less likely to come down as much as some buyers would like.
Make sure you consider all these fees when you are determining what you want to pay for each property.
Since buyers are bidding on lots of short sales and bank-owned properties, much of the bureaucracy associated with those kind of sales is still there. But it still beats having to go to the courthouse steps.
Like all good deals, good investors will have to be patient and do their due diligence. Properties can be purchased outright for a flip or potentially wholesaled prior to closing.
Speaking of closing, Hubzu has their own title agents who can set up the closing, or you can set up your own. Up to you.
Take a look at Hubzu. Some investors have made a lot of money with properties purchased on the site.
Share Please
We would love to hear if any Moguls have had experience on this site. If so, share in the comments section below.
Buy Creatively – As the market recovers, finding great deals on the MLS is becoming more challenging. So find other ways to buy houses – Hubzu is one way.
Do Your Due Diligence – You make money when you buy real estate. Make sure you buy at a price that allows you to make money.
Look for Distress – There’s a reason most of the properties on Hubzu are bank-owned or short sales. Good deals mostly come because someone needs to fix a problem they are having in their life. Fix that problem for someone, and you could be handsomely rewarded.