Trick Banks Use to Make You Overpay for Property
Q: I’m going to the sheriff sale auction to see if I can buy an investment property on the cheap. Any tips you can give me? Calvin, Montclair, NJ
A: Good question, Calvin. You have to be very careful at auctions because there’s usually at least one person at an auction dumb enough to pay too much—you never want to compete with idiots–better to let them win.
Auctions use the law of supply and demand to work in the bank’s favor at the sheriff sale. Their objective is to create an auction effect. An auction effect occurs when buyers get into a “gotta have it” mindset that can pressure them into paying more than they should. People at the auction get really worked up and excited because of course they want to win! Unfortunately, you don’t necessarily win by buying the property, you win by buying the property cheap enough so that you have equity built in from the start.
If you are going to go to an auction, do you due diligence on properties you want to bid on and come up with a price ceiling for each one before you go to the auction–this will protect you from getting too excited and paying too much.
Thanks for your question, Calvin, good luck.
For more real estate tips and information, visit my blog at geraldlucas.com.