Auctions offer another way to purchase foreclosed properties

With foreclosures and bank-owned homes piling up in the Las Vegas Valley, housing auctions offer yet another alternative to procuring one's dream home -- with some bidding competition from others dreaming the same little dream, of course.

"We had just started up again last year in Las Vegas after we had been dormant there for the last five, six years -- this is a cyclical business that we're in," said Edgar Pagaza, public relations manager of the Real Estate Disposition Corp. "When there are foreclosures in Las Vegas, that's when we do well."

The Orange County, Calif.-based REDC did quite well when it held a two-day auction back in March inside Cashman Center, according to Pagaza, since the company sold more than 90 percent of the 318 homes on the auction block. Pagaza estimates that REDC sold another 90 percent of the homes it placed on the auction block at an event inside Palace Station May 3, and sold about $68 million worth of real estate during an auction held in the Las Vegas area in December of 2007.

The Dallas-based Hudson & Marshall auction company held its last event in Las Vegas on April 20, uncrating 160 real estate-owned properties that ranged from $70,000 to $740,000 in starting bids, which is similar to REDC's price ranges.

Bidders can walk away with a home priced well under what it sold for in years past. But the final outcome may contain an element of risk, according to Jack Sternberg, a New Orleans real estate guru and creator of investment informational "Buyer's First Program."

"In an REO situation or with a bank-owned property, it's the owner's mandate to get the best deal," Sternberg said. "In an auction environment, there's a lot of due diligence required, and you can get a great deal or you can get a pig in a poke, too."

In the case of REDC and Hudson & Marshall, a bidder must play by the rules. All REDC participants must pre-register, then provide $5,000 in the form of cash or a cashier's check when they arrive. A sum of $2,500 is required from Hudson & Marshall participants upon their arrival.

After the auctions commence at either company's event, anyone placing a winning bid on a home will then be charged a 5 percent "buyer's premium," which is added onto the winning bid, thereby establishing the home's total purchase price.

The bank that owns the home now has the right to accept or reject the bid.

"There is a reserve price that the banks have the right to use," Pagaza said. "If there is a bid that is too low for what the market is, they might not accept it. That usually doesn't happen. But the bank is taking a hit or a loss, so that's why the reserve price for each home."

Investors and first-time home buyers attend the auctions, according to Pagaza, and financing experts are on-hand to make sure winning bidders can secure a loan.

All the major lenders are there, and they will be assisting you with everything," he said. "They make sure you get your loan by determining whether or not you qualify."

Would-be bidders also can check out properties in advance, since REDC has Realtors stationed at every house on the auction block the weekend before each auction. Banks that are in possession of these properties let REDC take over the marketing of the residences, some of which may not fall into the "distressed homes" category.

"Vegas is one those markets where we're seeing a lot of business, along with Southern California and Florida," Pagaza said. "Las Vegas went to an extreme -- builders did not foresee the circumstances that are happening today. Las Vegas is a market overflowing with virtually brand-new properties.

"We are doing very well throughout the country and that includes Las Vegas -- this is definitely the time to buy because if you go to one of our auctions, people who want to purchase a home make an investment. It's sort of a perfect storm for the prospective home buyer; financing is better than it's been in years, and lenders are being flexible with their terms. And in Vegas, you have very nice homes available."