I recently closed my first REDC auction and I will share my experience. If you already know all this, just skip past but it might be useful to some. Its not all that exciting but you really might find it helpful.
This includes:
inadequate inspection periods
unfair contracts
unfairly manipulated bidding process
incompetent escrow process
Before the auction:
They have several open houses. By several I mean 3 to 10 days of being held open and hosted by agents. The auctioneer calls this the “inspection period”. This is the only time you have a chance to inspect for defects or problems. Additionally, they put a boilerplate of the purchase agreement on their website during this time.
The contract:
The contract is the most simple contract I have ever seen in my career. It essentially says that upon success at the auction, the buyer must immediately submit a deposit. That deposit is held with the escrow like a normal escrow. The deposit is not refundable for almost any reason. It also states that the buyer cannot inspect or visit the property during the escrow.
During the auction:
First my editori
I have to admit that I have never been to an auction other than the pbs or charity style silent auction. Sorry if that seems a bit elitist. I grew up in the wine country. Also, yes, my wife drives a Prius (the shame). The auction sounds like and has the feel of a cattle auction like when I was very young in Wisconsin. Often they are held in an auditorium.
There are hundreds of folding chairs in rows. At the front of the auditorium there is a stage. On that stage are 2 or 3 screens. These show the property that is being auctioned at that moment as well as any special notations about it (eg: plumbing has been removed, no financing available).
There are 2 podiums on that stage. One has the announcer. He announces the item as it becomes available. The other is for the auctioneer. He does that cartoonish numerical chanting.
To win an auction, one must raise his number sheet to show that he agrees to the price being stated by the auctioneer. For example if the auctioneer says “One hundred. One ten” he is saying “I am bid $100,000. Is someone willing to go to $110,000?” The person willing to go to $110,000 will raise his sheet. Generally the increments are 5, 10, 25. If the auctioneer adds an increment and nobody goes for it, he goes to the next lower increment. So, if he was bid 100k and nobody raised their sheet for 110k, the auctioneer would then say “$105k?”.
In addition to the auctioneer are several people wearing tuxedos who point out and flag people who raise their number sheets. Their job is to continually look enthusiastic or clown around and keep the energy level high. I do not know what the real term for them is but I refer to them as “fluffers” (which is a bit vulgar) or “touts” (which is the term I will use here). They clap a lot and continually yell things like “sell it” and other such nonsense as they walk up and down the aisles. As people raise their sheets a tout will come around and yell “hup” or blow a whistle or something.
Many properties (though certainly not all or even most) will have no minimum bid (or an absurdly low minimum). When the bidding starts on these, the auctioneer will start at $1000 (or something similar). He will then immediately go to $25k or $50K. The touts will yell and signal that someone has met the number until the bids are in the $100k range. The weird part here is that they will point towards the back as if someone back there is running up the bid price. When I noticed on a couple of these, that I could not see who was bidding, I positioned myself in the front for the next one, looking back on the crowd and behind the touts. So far as I can tell they never actually had bidders for those lower numbers. They just faked it and bid up the price themselves. I am not absolutely sure of this but that sure is what it looked like.
Winning the auction:
The auctioneers have “escorts” (“thugs” was taken) take you to an onsite escrow desk. At that escrow desk, an escrow representative takes your deposit and has you sign escrow instructions. You have 5 minutes or so to read the 3 pages you are signing. You are charged an additional 5% beyond the winning bid. That surcharge is the fee to the auctioneer.
After the auction:
The escrow process went fine until it was time to close. The escrow erred in the following ways:
They called the client on a Saturday a week and half prior to close and announced they had closing docs for her that day. She called me in a panic. Nice. They had apparently misread the date.
They wrote up a closing statement with multiple inaccurate charges (all of which were overcharges). Seriously, stuff like 2 recording fees for one deed.
They reproduced the closing docs in a size and format that the recorder could not accept.
They realized after signing that they had not gotten the HOA docs. This meant they could not close. I had to track down individual board members and have them fill out forms.
They realized 4 days after signing that they had not ever gotten a signed grant deed back from the seller.
While I did try to warn her, I doubt that the buyer will every work with me again. I really don’t blame her. It was a nightmare.
