I recently heard of an auction at the courthouse at a nearby county where one person purchases several homes and then sells them to a network of people/investors in a round robin auction. He is known as the wholesaler. My question is, is this a form of bid rigging? It seems like the activity could be an agreement where the investors don’t bid initially and then hold a secondary auction to buy the property from the wholesaler.
Why would the investors not buy the houses at auction and instead wait for the wholesaler to buy them. Seems like the investors end up paying more money that way. Am I missing something?
They will allow the wholesaler to buy the property so it is not bid up at the auction on the steps. Then they bid against each other to buy the property from the wholesaler. The wholesaler makes a profit on the difference and there is a kickback from the profits given to the bidders who do not win. I think that is clear collusion. But what if the bidders in the “second auction” were not given a kickback, isn’t that just wholesaling?
Is there some law that governs auctions that makes the collusion illegal? if not, I would just see it as smart investing by all parties involved, and if the auction company doesn’t care, why should we?
There is a law (federal law) called the Sherman Act.
“Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $10,000,000 if a corporation, or, if any other person, $350,000, or by imprisonment not exceeding three years, or by both said punishments, in the discretion of the court.”
It sounds to me like this group is trying to monopolize the auction market preventing the banks from receiving fair market value for the properties. Check out this case:
oh yeah, I have LOTS of sympathy for the banks, boo-hoo.
I agree with you 100%, but I just want to make sure if I were to get involved that somehow it is not illegal. It sounds like it is though.
Doesn’t sound illegal at all. The banks sell the properties at auction at a price that’s acceptable to them. Whatever the buyer does with the property afterwards is the buyer’s business. Likewise, investors who don’t want to participate in the “2nd auction” don’t have to, they can just go bid at the auction themselves.
But thats the thing…they can just go bid at the auction, but they don’t because they are all in agreement to not bid and participate in the 2nd auction and get a kickback if they don’t win.
The way you ask your question, NO, it is not bid rigging. What it is is smart. I am not real sure about the round robin approach; I like the sealed bid system better. Anytime you can acquire a property at a wholesale price and sell it for more, own it or not is a good deal for you, how good depends on how fast and how much you make. You should always be honest and make all your disclosures up front. Treat people right and they will love you for ever. By the way, I am an auctioneer and sell hundreds of properties at auction.
Might be questionable, but very creative.