Auction Learning Curve - Posted by wayne-OR
Posted by wayne-OR on May 10, 2007 at 23:40:38:
I would like to share a story that may give some insight and help some people just starting out like myself
It all started on Monday evening when I was sitting around at the local coffee shop reading the paper. I scanned the “auction” section and saw a double wide MH sale going on for the next morning at 10 am. I had the day off from work and was planning my next day, so I decided to go.
I did not know if this was in a park, or any other info for that matter, Just a time and address. I had no clue what to expect and was just going for the learning experience mostly.
It was way outside of my area that I operate in (45 minutes away), but when I arrived it was in a nice park.
I went through the motions and checked out the home inside and out and did liberal rehabilition estimates on the inspection form I tweaked for myself.
10:05 am—all of the contents of the mobil home are starting to be auctioned off piece by piece…this goes on for a little over an hour.
11:10 am—I pull the owner to the side to get info on the MH. He shows me a folder showing that the property taxes have not been paid in 4 years, basically since it was bought. (1 RED FLAG)
Additionaly I find out that the title is lost (2nd Red Flag). I had the lost title paperwork with me so I gave him a copy of that.
I find that the terms for the auction are as follows:
Cash purchase–payable all now and the money will be used to catch all liens up the following business day.
I tried to explain that Oregon State Law Requires that all Real Estate Transactions (including personal property MH’s) MUST be in writing, but he shrugged it off that that was not a big deal (3rd Red Flag).
Additonaly he said the lot rent was behind but he did not know how much (4th red flag).
So at the end of this he knew what my process was to buy the home and I also set it up to where he would take a note for any amount above the liens on the home (whatever they may amount to) with the terms of 3% amortized over 5 years with a ballon in 6 months.
SO from here I basically had 30 minutes to kill until the actual home was to be auctioned. SO I hit the phone to do some quick due dilligence.
I called the park owner and found out that he was being evicted that day…he had until midnight to get out…and that the back lot rent was for 4 months (including this month)…totalling $1,200. Since this was outside of my area I would prefer to do business I did some off the wall negotiation without the usual time to cultivate a relationship for a basis of negotitation with the park owner. I asked the park owner if he would be averse to taking a discount on the back lot rent and a moratorium on lot rent until the home could be rehabilitated and put back on the market. He said it was definetly open to negotiation and I said the way the numbers are looking for me is there would be a large initial cash outlay to rehabilitate the house (not really–but hey I am negotiating here)…and would he forgive 2-3 months back lot rent and give 2 months moratorium on the lot rent until I could get it to market.
He said yes…(I was thinking you had me at hello—I wish all negotiations went this easy)…I left him my name and number and said that if I was unable to work a deal out with the seller that he would eventually become the owner and I would definetly be willing to work a deal out with him for the home—he said yes again.
Also found out a shed was built illegaly without permits and the county was forcing its tear down. (park managers are just a treasure trove of info)
I thanked him for his time and said I would call him back with the results of the auction in a few hours. I then proceeded to call the county tax assesors office…1000 and some change in back property taxes.
So I went back to the auction at 10 till noon and the owner pulled me aside again.
I reiterated what my terms were for purchase (a purchase and sales agreement—A power of attorney–we would drive to the county tax assesors office that day and i would personally write them a check for the back taxes–a MH home bill of sale, etc etc)…I further stated that I would their was 4 months of back lot rent owed totalling 1200 and that I would personally clear the back lot rent (chose my words carefully here) …the back lot rent past due amount and that the 1200 would be deducted from my winning bid price along with the property tax amounts.
Additionaly I said that I would give him a 100 dollar check and we would create a unsecured promissory note right there (I had them with me) for the remainder after the MH lost title paperwork was signed and notarized (state requires notary for lost title paperwork).
He agreed to all of it because it looked like I was the only serious buyer there.
And then the other shoe dropped when he asked me what I was willing to pay for it. Before I could answer he said “8000, 9000?”
I said “I am more in the 2500 to 3000 max total range”
So we end our conversation and the auction starts…
At the beggining of the auction he reverted to his all cash now and my terms stance and in my head I decided to pass on the whole thing if the deal was not going to be done according to the way I operate (some deviation would have been fine—but there are some processes that I simply wont deter from like all the paperwork being done correctly).
Someone opened up at 2000 (basically the past due lien amounts)…and then noone else bid…
Well you could tell at this point that he was getting desperate…and he kept goading me to bid higher…I said I would have to pass unless he agreed to abide by the terms we talked about…he said he would…
So I bid 2500 ( amazing how people get funny on their terms when they have to move that day----He didnt know that I knew though—I knew his motivation just from talking to the park owner).
At this point the other people bid 3000 and that was the absolute maximum I was willing to pay for the home.
See another thing from talking to the park manager was that it is a 55 and older park. But he said that he is flexible on that if the people have “good” credit and that the park is closer to 70% 55 and older.
I wanted to break my calculator out again at this point and run the numbers again…but I already ran them 3x’s since I was there and knew what yield I wanted, how much repairs (high end) would be, what my resale would be…with the amount saved on the lot rent side negotitaion even…3,000 was the absolute maximum.
SO I had to really fight the urge to do some more math and just swallow my ego and let the deal go…I could tell the other people would go higher.
SO I simply passed at this point and it went for the 3k.
I thanked him for his time after it closed and gave him my card and asked him to give me a call if the other buyers didnt fall through…I also gave my card to the buyers and said to give me a call if run into problems and want to sell it to me on terms.
I got into my truck and drove home…on the way I called the park owner/manager and said that the home sold for 3k cash and that if he did someone wind up with the home or had any other homes in the park to give me a call and we could sit down and work out a deal.
He then said that he has had nothing but problems with this tenant for years (constantly late on lot rent etc etc), and that he was just going to take the money and run.
I didnt comment on this and just left it alone.
I thanked him for his time and said I would keep in touch.
I have thought about this for over a day now over and over and over in my head trying to think if I would have done anything differently…
but above that it pops into my head that this deal may not have happened, but I accomplished so much more–talking more smoothly to the park managers–not scared to ask for a reduction/moratorium/forgiveness on lot rent, helping get over my apprehension to ask for owner financing…
and most importantly.
Cover all 3 bases for maybe a future deal with this home…
–with the current owner in case the auction winners back out.
–with the auction winners who were planning on using it as a rental—when they find out rentals are not allowed in the park they may have a “dont wanter” on their hands, or if the seller skips town with their cash and doesnt satify the leans on the home.
–with the park owner/manager whom may own it some day if the seller/auction winner bury their heads in the sand and do nothing with it…ultimately he would own it…I will stay in touch and will step in and do all the abondement of property paperwork for him and save him time and money.