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Last weekend a cashflowdepot member did a Highest Bidder Sale in Phoenix. It’s not where she lives. She flew in to do the HBS. The estate has 2 houses and a storage building which could be converted to a studio apartment. It’s on an extra large lot and zoned for 4 houses. It appraised for $389,000.
Two weeks were spent doing marketing, including press releases, 100s of signs, 1000s of flyers, daily craigslist ads, ads on all real estate related websites, etc.
The starting bid was $229,000. But traffic was unusually low – despite all the marketing.
It is a unique property built in 1936 so I thought maybe that was the reason for a low turn out. They did notice that some people drove by but did not stop to see inside the houses.
Then I did some research about the crime in that zip code and was shocked at what I saw. On a scale of 100 – it ranks at 93% crime – violent crime – including murder, rapes, assault with a weapon, etc.
Surely the locals know that’s a BAD area and that’s why bidders did not show up despite the extensive marketing. But the person who did the HBS was not local and she did not check the crime states and the seller did not mention it even though she was fully aware.
If this were wholesale flip it may have sold to a rehabber looking for section 8 housing.
But this was a retail sale hopefully and the buyers were just not showing up.
Finally it was down to 2 bidders. One for $319,000 who had $70,000 to put down but needed conventional financing for the rest. And a $330,000 bid who needs FHA financing ( the lease desirable financing because it takes so long, requires their own inspections and appraisers). both buyers have excellent credit.
As of an hour ago, the $330k buyer was talking about going to $340,000 if that’s what it takes to get the house. So, I anticipate that today it will sell for about $335,000. The mortgage broker, who was at the house during the open house, says he can close it in less than 30 days… we’ll see.
It is below appraisal but the whole process took 2 weeks of marketing and 2 days of an open house.
If they property had been listed with a real estate agent for a 6-12 month listing there is no guarantee that the house would have sold or that it would fetch any more than $335,000.
Sometimes less money fast is better than more money slow.
If you don’t know the area where you are doing a Highest Bidder Sale or any deal – check the crime stats before you agree to do the deal.
The other big mistake for this HBS was not having a written marketing agreement or option The person doing the HBS is friends with the seller. They had discussed how the payments would work and agreed to everything verbally. They person doing the HBS thought the other person would do the honorable thing. But when it came time to write up a contract for $3330k the seller started backing out of her verbal promise to pay a flat fee for doing the HBS because the price was not as high as she was hoping it would be.
Quick way to kill a friendship is to not have financial agreements in writing.
Jackie, I was there in Phoenix through the whole process, and observed first hand the proceedings of this HBS. There are pros, and cons to doing an HBS in an area you are unfamiliar with. To conquer the unfamiliarity, one has to do extensive research of the area, before settling on many key decision-making factors. You are absolutely right about having a written agreement, or option before hand to delineate the roles, and the terms clearly so that there is no ambiguity, and thus no chance of ill-will developing later on. I’ll just add here, there are 2 sides to every story, especially when verbal agreements are made; it falls to a he-said/she-said murkiness, and subjective memories playing another own role.
Hi AishB
Welcome to CashFlowDepot!
You’re right there are two sides to every story. I was involved with the pre-sale discussions so I got to hear what was agreed to in advance of the HBS. But minus a written agreement, people do tend to forget what they agreed to. A written agreement, spelling everything out, is essential in any HBS or any business dealings.
A contract was signed for $332.000!
The person doing the HBS will get paid something ( not as much as agreed) and the seller will get her house sold ( though not as much as she was hoping for). The buyer is thrilled to get the property! It should close by the end of October.
The seller could have refused to take this buyer and held out for a higher price trying to sell it on her own.
Hopefully it will all work out for everyone involved.
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