Tag Archives: auction

Real Estate Auction Investigated — Homes Sold May Not Have Been Foreclosed. Angry High Bidders Still Waiting for Properties.

We’ve written about possible bid rigging in real estate auctions.

Now Massachusetts is investigating an auction of 300 foreclosed homes by California-based real estate auctioneer Real Estate Disposition Corp. to determine whether some homes were sold before the foreclosure process was completed.

According to the Boston Globe, about a quarter of the winning bidders at a November real estate auction held by Real Estate Disposition Corp. have yet to close on their homes.

“Frustrated bidders say they have spent thousands of dollars on deposits, fees, and financing only to find themselves mired in delays and legal complications that raise questions about the integrity of the auction.”

The Globe reports that “In several cases, bidders waited months for mortgage companies to take ownership of the homes that the companies had offered at the auction.”

The article also states that “In addition to those properties that the lenders had not yet foreclosed on, in other instances Real Estate Disposition failed to retain the lawyers necessary to conduct closings.”

Letters have been sent by the Massachusetts Division of Standards to several Real Estate Disposition Corp. employees warning them that they could lose their state licenses if they auction properties prematurely.

The Globe also reports that the company “has previously acknowledged the problems with the November auction, and said it has changed its policies to exclude any property from the auction until foreclosure is complete.”

We’re not big fans of real estate auctions. 

Certainly, there are deals out there.  But too often there is not enough time to conduct a proper inspection of the properties, and the opening bids are more opening gambits than real opening offers. 

We also think that the due diligence necessary to participate sensibly in real estate auctions requires the time and effort of a full time job. 

Unless you’re willing and able to make going to auctions your primary occupation, we think you’re more likely to waste your time and money than make a profitable deal.

What has your experience been with foreclosure auctions?  We’d be happy to post any insights you might have.

Are Real Estate Auctions Rigged?

We recently came across a study by the University of Melbourne in Australia that questioned whether real estate auctions were “rigged” against potential buyers of the auctioned property.

With the tremendous rise in foreclosures and the auctioning of financially distressed property in this county, we thought we would post the conclusions of the Melbourne report and ask for your comments.

Here is what the professors at the University of Melbourne had to say:

Auctions have always been promoted as a tried and proven method of achieving the highest sale price for a property. It gathers together prospective purchasers in one place at one point in time and sells the property to the highest bidder.

It has been proven in empirical research that auctions generally achieve a higher final transfer price than an open market sale.

Even though both approaches are applied in the same marketplace within the definition of ‘market value’, there have been no valid reasons to explain this difference.

One practice that has been openly acknowledged is the practice of ‘dummy’ bidders, which may partly explain this premium. The use of ‘dummy’ bidders by the vendor and/or auctioneer could have the effect of distorting the true market value, designed to deceive the purchasing public into competing at an inflated price in the auction process.

It appears that the genuine popularity and reputation of the auction process is seriously threatened by the deceitful use of ‘dummy’ bidders. Steps must be taken to eradicate the tactic before the entire residential auction industry is discredited, and the ‘level playing field’ must be returned for the vendor, auctioneer and the bidders alike.

Potential improvements to the auction industry to discourage this practice could include strong fines to both the individual auctioneer and their employer, with endorsement of the fines by the relevant industry body.

Not until after the successful eradication of the ‘dummy’ bid and associated deceitful practices (e.g. ‘two tier’ marketing) will purchasers and vendors be able to confidently trade in a fair and equitable marketplace. Only then will valuers be able to rely on true market value sales with a higher level of confidence.

Does this reflect your experience with real estate auctions? What advice would you give to those who are thinking about buying property today at an auction? Your comments are welcome!


For our post on the investigation of an auction of foreclosed homes by California-based real estate auctioneer Real Estate Disposition Corp. to determine whether some homes were sold before the foreclosure process was completed, click here.