It’s been awhile since my last post but I had just had to do a recap of a great event I attended last week. This was hosted by the New Jersey Real Estate Investors Association (NJREIA) and was all about how to find deals at the auction, a.k.a. the sheriff sale. The group is lead by Nick Tang, a very knowledgeable investor with many years of experience making deals in all avenues of real estate throughout the Tri-State area and beyond. The group was highly recommended by other investors I have connected with, so I was anticipating a great event!
Similar to other events, this NJ REIA event started with an hour of networking as people began to trickle in from work or their other commitments. The room featured a mix of budding and experienced investors, insurance agents, lenders, real estate attorneys, and of course, realtors! Once everyone had settled in Nick took the front of the room to commence with the main part of the event. Before diving headlong into the details of the event. I thought it would be important to explain what a sheriff sale is and how a house event gets to that point…
What is a Sheriff Sale?
A sheriff sale is a public auction of real property facilitated by a city, county, or local municipality. Properties become available at the sheriff sale after they have undergone the process of foreclosure after the owner defaults on their payments. How long before a property goes on the auction block depends on the laws and procedures of that particular state and county, ranging anywhere from nine months – three years.
Different jurisdictions will host a sheriff sale either weekly, bi-weekly, or monthly depending on the number of foreclosures in that area. To find the list of available properties and when they are scheduled to be auctioned off can usually be found online on that county sheriff’s website. For example, here is the list of available properties going to auction soon in Essex County, New Jersey.
Real estate investors attend sheriff sales because they can typically buy property at a discount of fair market value. However, there are a few caveats to consider about purchasing at the auction:
- You are bidding on property sight unseen. On many occasions, property being put up for auction may still be occupied by the owner or a tenant, therefore making it difficult to get an inside look to properly determine the condition of the property.
- You must have as much as 25% of the winning bid ready THAT DAY. If you win a bid at an auction, you are required to hand over a certified check as a deposit right on the spot. The amount differs depending on the jurisdiction and ranges from 10 – 25% of the total bid.
- You must pay the difference within 30 days. After giving up your whopping deposit at the time of the auction, you must be able to provide the remainder of the funds to the sheriff’s office within 30 days. Under some circumstances one could be eligible for an extension, but 30 days is the most common. If you are unable to come up with the funds the property will go back up for auction and you will forfeit your original deposit.
Now that you have a better understanding of sheriff sales, let’s talk about the actual event…
The presentation part of the event was a step-by-step process of how Nick Tang evaluates properties and prepares to get deals at the sheriff sale. See below for some great tips!
- Look up the details of properties that will be available for auction on your county sheriff’s website. The most important things to look for are:
- Address of the property
- Name of the bank that has initiated the foreclosure
- Name of person that owns the property
- Date the property is scheduled to be presented at auction
- Upset amount that the bank is seeking to recover from distressed mortgage
- Use websites like Batch Geo to formulate a strategic route to drive to the properties so you can get some semblance of the condition they are in
- Go check out the property in person to see the condition of the exterior. Also, go talk to neighbors and if you are bold enough, knock on the door to see if someone lives there!
- Short cut to determining your MAO (Max Allowable Offer), multiply the ARV (After-Repair Value) with a pre-determined multiplier to arrive at your MAO
- For “A” areas, or the best locations in a town- 70% multiplier
- For “B” areas, or working class locales- 65% multiplier
- For “C” areas, or lower class neighborhoods- 60% multiplier
- Use a title company to check on the title of a property you’re interested in to see if it has any subordinate liens or outstanding property taxes.
- You can usually get better deals from an auction as opposed to REO properties because the bank has not done their own evaluation yet to determine the exact value of the property.
- Sometimes it is better to cut your losses and just forfeit your initial deposit to the sheriff’s office rather than continuing with the property if you find some extra risky or unfavorable details later after performing your due diligence.