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Donnie Bennett


Home Auction TodayHave you ever parked at meter, fed the meter and then returned to your car to find that the meter had run out but no ticket had found its way to your windshield? There’s a self-high-fiving moment when you joyfully recognize that you were able to squeeze out a few extra minutes of precious parking… for “free”. That’s what some folks might call a “score”.

Whether it’s a candy bar, a flat screen television, a vacation package, a pair of sneakers, costume jewelry or anything else that you can think of buying… EVERYBODY loves a deal, right? Who doesn’t like the idea of getting something for better than a good price, or even a “steal”?

Since we all love scoring a deal on the small things… then it only makes sense to seek savings on what (for most of us) is likely to be the single biggest purchase that we will ever make in our lifetime. Of course, I’m talking about BUYING A HOME.

Enter the Real Estate Auction:

This is a topic that I first delved in to, way back in 2007, on my former radio talk-show (REAL ESTATE 101 on WPRO in Providence). I then saw a reason to revisit the topic in 2011, when a surge in bank owned properties had hit the Rhode Island real estate market… causing an uptick in so-called “auction” activity.

Well… the time has come again to help educate people on the all too often shady world of alleged “Real Estate Auctions” that can confuse the majority of buyers – even the educated ones.

According to Google and Bing (the two biggest internet search engines, in case you didn’t know) Real Estate Auctions are once again becoming a prominently searched topic. Unfortunately for some, that’s because foreclosures are still very prominent these days – and there are still many homes that lenders have in their inventory, that they have yet to unload.

The space that foreclosure notices occupy in published print (advertising properties that are soon to be auctioned) has been diminished over the past few years, but it is still a handsome addition to the revenue stream of many newspapers around the country. That’s a good thing for them, since so many Real Estate Companies have simultaneously downsized their newspaper advertising due to two major factors: #1) The benefits do not match the expense; and #2) Traditional newspapers can no longer compete with the effectiveness of internet marketing. But that’s a topic for another time.

The thing to know is that these foreclosure sales nearly NEVER result in a regular person, like you or me, “scoring” a great deal on a valuable piece of property. That’s because the majority of those foreclosure sales in the newspaper are for homes that have mortgage debt far above their current value. That is exactly what it means when you hear the phrases “underwater”, “upside down on the mortgage” or even “negative LTV” (loan-to-value) for the super-smarty pants reading this.

Since more money is owed on these properties than any investor would consider spending, these auctions generally result in the winning bidders being the lending institutions (lien holders) who hold the mortgage notes on the auction properties. When the lien holders purchase these homes they are eventually returned to the market are “REO” (Real Estate Owned) properties, also known as “Bank Sales” or “Bank Owned properties.

But… believe it or not… there is NOTHING about this practice that is uncommon, irregular or that qualifies as a scam. It may be frustrating if you’re a bargain hunter looking to pick up a nice piece of property. But this is a normal auction process. Sometimes these auctions are actually postponed at the last minute, even if they have been extensively advertised in the newspaper. Either the owners of the home have come up with the money to pay off their back-balance or they have found a buyer for the home and negotiated a SHORT SALE that essentially kills the reason for the home to be auctioned off.

What all of this adds up to is that it is very difficult in this day and age to score big by participating in foreclosure auctions.

But recently a NEW type of “auction” process has started to spread across the country. If I’m being nice then I’ll call it a “marketing ploy”, but if I’m being real (which is my default setting) I can only sum it up by calling it what it is… a SCAM!

Enter the SCAM Real Estate Auction:

Since I’m a Rhode Island REALTOR® I am often inundated with various “opportunities” to market my services, market my properties, optimize my website, participate in seminars, or be a part of professional and educational conference calls.

All of these so-called opportunities have a common thread. They all end with somebody asking me for money.

In the past fifteen years there has never been a shortage of companies seeking to “partner” with me in some way, shape or form. As a result I have become somewhat of an expert on filtering out the good from the bad and the ugly.

About five years ago I was contacted (multiple times via marketing e-mail messages) by an “AUCTION” Service. This same company had (at that time) recently partnered with my State Association of REALTORS® to offer the same “opportunity” to every single REALTOR® in the State. What they were offering me (and everyone else) was a free opportunity to feature my inventory of listings on their website, and in their marketing. They were giving me a small window of time to do so for FREE and the end result would be that my listings would sell faster and easier than ever… by being AUCTIONED OFF!!

On the surface… it sounded like a great gimmick. However… for those who participate after the free-trial, the “Auction” Service would collect an upfront fee for each listing.

And the most important part of their business model was the simple fact that whether BEFORE or AFTER the free-trial… the auction company would collect another fee – called a BUYERS PREMIUM – which would be imposed on the buyer, or “winning bidder”, at the conclusion of each sale. This fee would be 1% of the purchase price… and I have to say… such a fee was indigestible to me. And the main reason why… is because the 1% fee would be imposed on the buyer whether the auction-like process had anything to do with the sale or not!

Basically… this so-called “service” was an attempt to create the illusion of an online auction.

Like any website it desperately needed CONTENT in order to thrive and so that’s the reason for the initial free offering to post listings on the site. Being fair – I did admit, at the time, that it probably could result in some sales – no doubt. However if it the “auction” process DIDN’T result in a buyer… then why should the buyer get hit with an extra “tax” for no good reason?

Also… isn’t an auction a place where one can go and bid on a property, be the highest bidder and then WIN that property? At the end of an ACTUAL auction… you’re just a few signatures (and a transfer of cash) away from driving straight over to your new property and doing whatever you’d like to do with it… because YOU OWN IT!

Not with this new breed of auction. It’s only an auction on the surface, when in fact it’s nothing more than a clever way to solicit OFFERS that can eventually be accepted, rejected or countered. Hence… this is somewhat of a scam that plays on the temperament of people who are seeking out a good deal for themselves in a tough economy.

Just this week I walked right into another version of this. It was a company that doesn’t generate their business from the Real Estate Agents, but rather, the very banks that have all of that property to unload. For the purposes of this example, we’ll identify the bank as “SELLER”.

SELLER lists their home with a REALTOR®. This ensures that the property will be marketed in the MLS and reaches the widest possible base of potential buyers. At the same time SELLER lists the home with this traveling auction company. Again – because the allure of an “auction” is tempting to many bargain hunters in any economy. The auction company then advertises through their website, newspaper ads and signage on the site of SELLERS property. All offers must run through their online system in order for me to submit an offer on behalf of my buyer-clients, even the Listing Agent had no hand in the process whatsoever (other than to get me access to the property).

In this particular case we were down to the wire and the online offer-submission service was deactivated (they do this 48 hours from the time of the auction, in part to ensure a larger turnout for their event. This particular auction event happened to be held at the Providence Marriott, less than 10 miles from SELLERS property, at 7 o’clock on a Tuesday Night.

Prior to attending the auction I went through the auction company’s website and spent quite a bit of time familiarizing myself with their rules and operating procedures. I noticed right away that they were accepting bids before, during and AFTER the actual auction.

This was a serious red flag to me… as it clearly indicated that the auction was NOT on the level.

It should be noted that my buyers were NOT “cash-buyers”… but rather, they would be financing the home with a mortgage loan. The same was true for many other bidders of other homes at this auction (very uncommon for a traditional auction). This told me that the auction company did their job very well. They marketed their services to regular consumers with effectiveness because NO INVESTOR would get involved with such a sham.

In any case… we attended. I warned my clients in advance of the pitfalls surrounding this process. I could see multiple issues that would not arise in a conventional sale. That is because this auction process relied on a whole different set of rules which, in my opinion, were intentionally designed to take leverage away from the buyers and create an unfair playing field for the SELLER.

With a traditional sale you have a purchase and sales agreement. This contract affords certain protections for a buyer. For instance… the “mortgage contingency clause”, a VERY important part of the sales contract that helps to protect any buyer who is financing through a lending institution. This clause clearly sets a timeframe for the buyer to obtain financing. Should that financing be turned down, and if the proper steps are followed, then the buyer does not forfeit their deposit money. Reasons for the buyer to be turned down could be items such as:

A.) Their credit score drops and they will no longer get the interest rate that they were initially promised;

B.) The house being purchased does not appraise for the value needed to sustain the loan amount;

C.) The house being purchased is found to have a serious mechanical issue (the roof, the heating system, the plumbing, the electrical system, the foundation, etc.) which make the investment unsound;

D.) The house being purchased has liens or encumbrances (unpaid debt) against the title of the home. In this last example the debt must be resolved by the time of the closing by the SELLER or the selling side of the transaction.

Should any of these items, or any other items that impede the lender, be cause for the buyer to lose their financing then (in a normal purchase and sales agreement) that buyer would be able to exit the agreement and RETAIN their upfront deposit money. Well… this faux auction process was specifically designed to cut that whole set of buyer protections right out of the process.

With that said… here are some of the things I noticed about this particular auction process:

#1) IT WAS ONLY AN AUCTION ON THE SURFACE: All of their marketing was geared towards average consumers looking to purchase real estate through normal methods. They enticed these buyers with the allure that the auction is a place where you can grab a fully functional prime piece of real estate for “pennies on the dollar”. No investor in their right mind would step foot into this auction… nor did they. This was strictly people looking for homes the traditional way, which is exactly what the auction company was banking on.

#2) A NON-REFUNDABLE $2,500 PAYMENT WAS REQUIRED: This money was needed in order to be given a bidding-paddle. However you only had to turn the money over if you were a successful bidder. Like I said before – there were conventional buyers, just regular people who were mostly financing their purchases with a lender. If you were to win the auction but then later were not able to obtain financing… then you would LOSE this money!

#3) THE WINNING BIDDER THEN SIGNS A NON-STANDARD PURCHASE & SALES AGREEMENT: A real auction sees the winning bidder paying for their purchase either on the spot or within a short, pre-determined, time period. When that gavel bangs… THEY OWN IT! But with this auction the winning bidder then signs a contract that gives them 30 to 45 days to complete the sale. This is specifically designed to allow buyers the opportunity to get their financing in order because – again – this is NOT a real auction!

#4) NO HOME INSPECTIONS WOULD BE ALLOWED: In a normal transaction you have the RIGHT to have a home inspection (as per the standard purchase and sales agreement). But this auction company has their own purchase and sales agreement and that little right is signed away as a pre-requisite to even being allowed to participate in the auction. Pretty slick, no? In a regular agreement you would also have the right to request repairs for any items that your home inspector finds to be a problem (so long as they were not disclosed by the SELLER in writing). Not only that, current law allows a buyer to walk away from the transaction – with all of their deposit money – if they are displeased with the home inspection for any reason.

For the record… bank owed properties do not generally have disclosures because the bank has no intimate knowledge of the property. This means that no problems are disclosed and there could be MANY problems that the naked eye of a consumer, like you, could conceivably miss. If a property has a huge problem and you happen to be financing it with a mortgage, the mortgage company would NOT move forward and (again)… you would LOSE that $2,500 deposit.

#5) YOU COULD BE BUYING UNKNOWN DEBT: Liens and Encumbrances for tens of thousands of dollars could very well be burdening the home of an auction property. This is pretty normal for auction homes. But we have to be clear here… this is NOT a real auction! It’s an auction process being applied to homes that are for sale through Real Estate Companies. With a traditional sale if your title search finds a lien then your lender can (and WILL) stipulate that the SELLER must rectify the problem in order to transfer title to you. This auction process leaves the buyer wide open to purchasing the property along with all of those additional problems, much like ANY auction would. However… in this case the buyers would lose financing over this… and along with it they would (once again) lose their $2,500 deposit!

#6) ALL SALES ARE NOT… I REPEAT… NOT… FINAL: What? This is the surest telltale sign of a phony auction! As I asked earlier… isn’t an auction a place where one can go and bid on a property, be the highest bidder and then WIN that property? Yes. But this new breed of auction is only a marketing ploy to get regular (non-investor) deal seekers (who might be looking for a score) in the door!! Once my clients were the successful bidders we had to go through a whole offer (yes, OFFER) signing process. And let’s not forget that they had to turn over the $2,500 cashier’s check as well. After that… we had to WAIT as the actual SELLER was then given the opportunity to accept, counter or flat our REJECT our offer.

 #7) A BUYERS PREMIUM PAYMENT MUST BE MADE: In the end my clients not only “won” the auction for that one home they were willing to risk going through this process for, but their offer was quickly ACCEPTED, which moved us from the offer to the auction companies version of a purchase and sales agreement. While the real estate company was afforded a 5% commission on this transaction – an amount of money that is deducted from the seller’s proceeds – the “AUCTION” company charges a 5% “Buyers Premium” which is 5% of the final bid and paid by the buyers!

Thus… the final bid was not the final amount of money due from my clients, as they then had to ADDITIONALLY PAY 5% more for the privilege of having a good majority of their traditional rights and protections eliminated.

I have to make it clear… I discouraged these buyers from participating every step of the way. They were duly informed about what I felt was important for them to know, but they were indeed hell-bent on purchasing this property.

I don’t want you to think that the “SCAM” of it all is that the properties do not exist, and all of the money and effort is for nothing (not that some inventive criminal hasn’t either thought or planned of doing something like that). The “SCAM” is that this is NOT a real auction process. It is nothing more than a chance for banks to unload thousands of properties by using this “auction” service as a mechanism to entice average consumers and to literally circumvent BUYERS RIGHTS!

Nine years ago I made it clear to anyone who would listen that I felt we would be seeing a lot more of these types of phony auctions until such time that something bad happens and lawsuits start mounting. And I wasn’t wrong. They keep happening.


Things have evolved in the 9 years that I first began warning about this shady side of real estate buying. The people who run these alleged “auction” websites did something pretty creative and ingenious; they leveraged the market and went to the banks instead. Specifically… short sales.

A short sale is essentially when a lien holder permits an owner of a home to sell it for LESS than they owe on it, so that they can avoid a foreclosure. However – the sale cannot take place unless the lien holder approves of the conditions of the sale.

Over the past two years I have been seeing and extremely annoying trend where I am helping to coordinate a short sale and after going through the lengthy process of listing and marketing the property… showing it over and over until a buyer is willing to make a reasonable offer… submitting the mountains of paperwork needed to process the short sale… and then waiting, waiting and more waiting for a response from the lien holder… ONLY TO BE INFORMED – just when we think we are at the finish line – THAT THE LIEN HOLDER INSISTS THAT WE NOW “AUCTION” THE HOME!!

This is frustrating… for everyone.

First of all… they could have made this an upfront requirement, but that would make too much sense.

Secondly… the seller is given no choice in the matter. They must participate or their short sale (the one they THOUGHT was about to successfully close) will not be approved and they will face foreclosure. And let’s not leave out that the BUYER in the transaction, who was patient enough to wait months for an answer, must ALSO participate in the auction – or else they will be disqualified from buying the home.

Here’s how it went down for me with a recent transaction:

#1) I represented the seller in successfully marketing a home that was a short sale. A buyer was in place (via a purchase and sales agreement) and they were represented by their own agent.

#2) After months of patiently waiting for an answer, the lien holders only response was to stipulate that the home would need to be placed on a website called Auction.com. They would not consider the buyers offer, unless they participated in the auction. And their participation in the auction would also mean that a “BUYERS PREMIUM”, above and beyond their final offer (or auction bid) would be imposed. Meaning that they buyer would have to pay Auction.com an additional amount of money – to the tune of 3.5% of the purchase price (in this case that would have been over $7,000).

#3) The buyers and their agent were FURIOUS… and rightfully so. They threatened to walk. And for a moment… they actually did.

#4) I had to start from square one in re-selling the property at a time when the sellers were emotionally drained. I then had to arrange for a series of showings, to accommodate the specific protocols of the auction website.

#5) The auction company listed the home’s opening bid at FAR BELOW the value of the property… and FAR BELOW the offer we had on the table. This was done to entice people to bid. In my view… this was classic bait and switch!! Something that no legitimate business could ever be allowed to participate in.

#6) Once the auction commenced… it was online for all to see. All bidders are anonymous.

#7) The original buyer ultimately decided to participate, which required signing up for Auction.com. They were under the misconception that they could now get the home for LESS MONEY than they originally intended to pay. However… each time they made a bid, they were overbid by another party. This happened over and over until the finally stopped when they were right back to the number they had originally offered before the auction process was introduced.

#8) The original buyer was promptly overbid by another bidder.

#9) The auction ended.

#10) HERE’S THE SCAM: Even though they lost the auction online… the original buyer was then contacted and told that the highest bidder was “disqualified” or “unable to complete the transaction”… and that their last bid would be accepted in exchange for the home.

I CALL SHULLBIT!!! (See what I did there?)

It turns out that if you read the fine print on the website… which I did… it states that AUTOMATED BIDDING would take place. What does this mean? It means that no matter what type of bid is from an actual human being, the computer will generate ANOTHER BID, OVER THAT AMOUNT, in order to keep the auction moving towards a higher dollar amount.

And… here’s the kicker… the general public will never know if they were scammed because the bids are all anonymous.

It is entirely conceivable, and in my view entirely probable, that NO OTHER BIDDER EXISTED IN THIS AUCTION.

In the end… I sold the home to the buyer I started out with… and for the exact same amount that they had offered. The only difference is that the buyer also paid an additional $7,000 which went directly to Auction.com.


Again… while it is entirely possible to navigate this process without risk… this whole endeavor is all too risky for the average consumer to participate in. There are too many opportunities to lose earnest money. There are too many protections stripped. There are too many problems that could arise AFTER the purchase is complete. If you are going to take the time to get involved in buying real estate then I strongly suggest you FIND A PRO!! You will be best served by getting the counsel of someone who can answer all of your questions before you let one penny of your hard-earned money slip into the abyss of someone else’s bank account.

“Caveat emptor” is Latin for “Let the buyer beware”. If you think that you’re going to swoop into your first auction and steal the best homes for chump change then you had better know if you’re standing inside of a REAL auction or not.

If you can’t leave the auction with possession of the home, if the seller has the chance to COUNTER your offer AFTER the gavel bangs, if you have to pay a “Buyers Premium” AND there is a Real Estate Commission being paid to a listing company… then you’re probably not getting the best deal in the world and that auction is a near-total scam!! However… if you stay informed and know what to look for then it is entirely possible for you to score a deal… but ONLY if you attend the RIGHT auctions have the RIGHT type of terms and financing. Just remember to be extra careful and try not to let emotion dictate your actions in any business deal with so much money on the line.

When in doubt, speak to a professional with experience.

And with that… please remember that I am here to bring you REAL ANSWERS to your REAL ESTATE questions. I am now accepting new Buyer and Seller clients in preparation for the spring 2016 selling season… or even if you are one of the smart sellers who knows that LISTING IN THE WINTER is actually a great way to avoid the competition and command top dollar by dealing from a position of strength.

So whether you’re thinking of SELLING in 2016 or beyond – or if you’re looking to BUY RIGHT NOW… no question is too small… feel free call.

 Trust me… I’m an AWESOME REALTOR!!

For more information… or for details on any specific property you might be consider buying (whether money is no object, or every penny counts)… please reach me anytime… 7 days per week. My team and I serve residential buyers and sellers all over New England… with affiliates around the world! Are you a FSBO SELLER? Call me for my complete guide to SELLING YOUR HOME ON YOUR OWN!

Thanks for visiting my website. Rhode Island is my home, and I’m always here to help.




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Donnie Bennett

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Donnie Bennett

Team Leader, Residential Expert, REALTOR®


401-269-9615401-269-9615 main


931 Jefferson Blvd., Suite 2006 - Warwick, RI 02886

Donnie Bennett, REALTOR®​ Serving Rhode Island

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