KW Default Solutions
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A real estate auction is a sale where buyers bid under set rules. The word doesn't tell you who owns the home, why it's being sold or what the buyer's terms are.
KW Default Solutions (KWDS) helps Keller Williams agents get default work: homeowners behind on payments, short sales and bank-owned homes. We also train agents to handle it.
What you'll be able to do: tell which kind of auction you're looking at and list the questions to answer before anyone bids.
01Auction is a way to sell, not a type of home
A foreclosure sale, a bank-owned resale and a homeowner's own listing can all be called "auctions." Each one has a different seller, a different reason for selling and different rules.
02The three kinds of auction you'll see
| Kind | Who's selling | Why |
|---|---|---|
| Foreclosure sale | A trustee, sheriff or other official running a legal sale | To collect a debt after the borrower defaults on the mortgage |
| REO auction | The lender or loan investor that now owns the home | To resell a home it took back |
| Private owner auction | A homeowner or investor | They chose auction as a way to market the home |
Any of these can happen online or in person. Bidding on a website doesn't make them the same kind of deal.
03Foreclosure sale
A foreclosure sale happens through a legal process after a borrower defaults, meaning they broke the loan terms, usually by missing payments. Depending on the state, a trustee, sheriff or other official runs it. A trustee is often the party named in the loan papers to handle the sale.[1]
Start with the sale notice and the current instructions from whoever runs the sale. Check registration, the deposit, how funds must be paid and the deadlines. Tours and inspections may not be allowed.
Ask what the buyer actually gets. It may be a deed (the document that transfers ownership) or another legal interest. A tax sale, where a county sells property for unpaid taxes, works differently from a mortgage foreclosure sale.
Other debts on the home, called liens, may or may not stay with it after the sale. That depends on the sale, the law and which debts come first. Rules vary by state, so get local title and legal advice before your buyer bids.
04REO auction
REO means "real estate owned." The lender or loan investor owns the home and is selling it. A loan investor is the company that owns the loan.
The owner may list the home the usual way or use an auction. If it's an auction, read the seller's contract and the auction terms. This is a new sale by the lender, separate from the foreclosure sale that came before it.
Some REO auctions allow showings and home loans. Others make that hard. Check the actual terms.
Bank-owned doesn't mean empty. A lockbox or an empty driveway doesn't give anyone the right to go in.
05Private owner auction
A homeowner or investor can choose to sell by auction. Choosing auction marketing doesn't, by itself, mean the owner missed payments or the home is in foreclosure or REO. The seller picks the method in a signed agreement.
One example is Dual Path Marketing, a KWDS program. An eligible home stays on the multiple listing service (MLS) and is also marketed on Hubzu's online auction platform at the same time, with you still working as the listing agent. Adding an auction doesn't turn a homeowner's listing into a foreclosure or an REO.
Before signing up, the seller needs to understand pricing, costs, how bids are chosen, what they're signing and what you'll handle as their agent.
06Four numbers that aren't the same
- Starting bid: where bidding begins
- Reserve: the lowest price the seller set under the auction terms
- High bid: the top bid when bidding ends
- Total cost: what the buyer actually pays once fees and costs are added
The starting bid can be below the reserve. Neither one is the home's market value, and neither tells you what the seller will accept.
Some auctions need the seller's approval even after bidding ends. Others are absolute, also called no reserve, meaning there's no minimum price, subject to the published terms.
Reaching the reserve doesn't guarantee a sale. Depending on the terms, the seller may still reject a bid, even one at or above the reserve. For example, Hubzu's published FAQ for its Signature Homes program says the seller may accept or reject a bid even if it meets or beats the reserve.[2] Other platforms and foreclosure sales have their own rules.
07Worked example: reserve and seller approval
Fictional numbers. A private owner auction starts at $150,000. The reserve is $210,000. The terms say the seller has to approve the winning bid.
- High bid ends at $205,000. The reserve wasn't met. What happens next depends on the auction's rules.
- High bid ends at $215,000. The reserve was met, but the seller can still reject the bid under these terms. Check the seller approval rule and any duties the bid already created.
Either way, the $150,000 starting bid was only where bidding began. It was never the likely sale price.
08What "winning" the auction can mean
When bidding ends, a website may show a high bidder. That can come before the seller accepts or a contract is signed. Payment, the transfer of ownership and move in can each take more steps.
Depending on the auction terms and state law, a bid can create duties before the buyer signs a later contract. Signing more papers later doesn't let the buyer cancel a bid.
Before your buyer bids, find out:
- How a bid gets accepted
- When the deposit is due
- Which papers must be signed
- What happens if the bidder doesn't follow through
Some auctions extend the end time when late bids come in. A countdown clock isn't a firm deadline or a right to cancel.
09Add up the real cost before setting a max bid
Some auctions add a buyer premium, a fee the buyer pays on top of the high bid. Others have different fees or none. Check the exact amount and any minimum in the auction terms.
10Worked example: the budget math
Fictional numbers. Every amount here is made up to show the math. The buyer premium is not any platform's real fee.
| Item | Amount |
|---|---|
| High bid | $200,000 |
| Buyer premium (fictional amount) | $10,000 |
| Price with premium | $210,000 |
| Estimated closing costs | $5,000 |
| Estimated repairs | $25,000 |
| Subtotal before carrying costs and reserves | $240,000 |
A buyer with a $240,000 total budget can't bid $240,000. The premium, closing costs and repairs come out of that budget first. Carrying costs and a cash cushion aren't counted yet.
- Carrying costs: the cost of holding the home, such as interest, taxes, insurance and utilities
- Budget reserve: money set aside for surprises (not the same as an auction's reserve price)
If a cost isn't confirmed, mark it unknown. Don't count an unknown cost as $0.
11"Financing allowed" still needs a real plan
A listing may allow financing but require a closing date the buyer's lender can't meet. The home's condition, or trouble getting insurance on it, can also block a loan.
Before your buyer bids, have their lender review the actual property and terms. Confirm:
- The deposit and payment deadlines
- Any conditions
- What proof of funds is required (a bank statement or letter showing the buyer has the money)
- Whether the buyer premium can be financed
A regular preapproval (a lender's early OK on how much a buyer can borrow) may not cover an auction purchase. Cash buyers still need to understand the payment rules. Paying cash doesn't answer title, condition or possession questions.
12Keep four questions separate
- Access: Can the buyer legally go in or inspect, and how?
- Condition: What shape is the home in, and what's been confirmed?
- Occupancy: Is anyone living in or using it?
- Possession: When and on what terms does the buyer take control?
As is means the seller usually won't agree to repairs, but the contract controls. It doesn't answer whether an inspection is allowed or whether the buyer can cancel.
13Before any bid: write one sentence and a question list
Fill in this sentence for the property:
"[Owner or office running the sale] is selling this home because [reason], by [auction type], under [the auction terms and contract]."
Then list every open question and who answers it:
- Title team: title and any liens that stay with the home
- Lender: the funding plan
- Attorney: the legal duties that come with a bid
- You and your broker: the real estate work
14Quick self-check
- A home is listed on an auction website. Does that mean it's a foreclosure? Answer: No. It could be a foreclosure sale, an REO auction or a private owner auction. Find out who's selling and why.
- The high bid beats the reserve. Is the home sold? Answer: Not necessarily. Depending on the terms, the seller may still reject the bid, even one at or above the reserve.
- Your buyer has a $240,000 total budget. Can they bid $240,000? Answer: No. Fees, closing costs and repairs come out of the budget first, as the fictional budget example shows.
Your next step
If you have a buyer who wants to bid or a seller asking about auction, reach out. We're happy to help: Contact KW Default Solutions.
General U.S. real estate education. Sale law, property documents and current auction terms govern each sale, and rules vary by state. Check with local professionals. No example is a recommendation to bid.
Sources: [1] CFPB: How does foreclosure work? [2] Hubzu: Sell a home in an online auction (FAQ)