Property Grunt

Wednesday, June 28, 2006

Reader question: Should I go to the auction?

Below is an email I received regarding an entry I did about auctions.

Below is an email email which I have modified to protect the identity of the reader about auctions and also includes my response.

Dear Property Grunt: I’ve just read your article “Irrational Exuberance” and was hoping to get some insight from you regarding the auction process. I put a house on a 1 acre lot at a dead end about sometime ago. Behind me are several separate 1 acre lots that are essentially landlocked with no utilities. I always considered buying one or two closest to my house so that I could prevent a developer from building townhouses in my back yard. I have found out that an auction company has bought one of them and is auctioning it off. My question is, having been to one of these do you think it’s worth trying to bid on this land – is it possible to get it at a reasonable price will they sell it near that price if nobody else bids on it? Do any properties ever get just one bidder? What about shills – do they run auctions without them? Anything you can offer would be greatly appreciated.

Thank you for reading my blog. I am not familiar with property law because I am not a lawyer but I will do my best to help you out.

First you should consult a lawyer, particularly one that specializes in zoning and easement law and you should also check with your local government what the laws are regarding easements before taking any action.

Depending on the laws it may work out in your favor. When you say landlocked I am assuming that accessibility to these acres has to be through your property. If am wrong please correct me since I am basing my information on this premise.

If the laws dictates that the new owner requires your permission for an easement then you are sitting on the catbird seat and the new owner is dead in the water because they are at your mercy in terms of accessibility.

Here are two examples of this type of situation. During the height of the recent boom a buyer got bit by irrational exuberance at an auction in Brooklyn and ended up the owner of a lot. Unfortunately he did not do his due diligence or was simply caught up in the fever because the lot was smack dab in the middle of a group of brownstones. The only way to get access to the lot was through one of the brownstone, which the owners refused which left the buyer SOL.

Another story I heard was a couple who used eBay to buy a piece of land in Vegas sight unseen. After packing up their stuff and moving to Vegas they got a very unpleasant surprise when it turned out there was a small valley between them and their property and required them to build a bridge. What ended up happening was a neighbor either took pity on them or was required by law to assist them and gave them access with their bridge.

If it turns out that the new buyers need your permission for an easement then you have the advantage since they can't do anything because they need your permission. And if they attempt do anything illegal all you have to do is call the cops, lawyers and public officials and they will lay the hammer down on the buyer.

The beauty is that you won't have to spend a dime at the auction. Or better yet if you want to buy the property you can take the new buyers to the cleaners because they need to get rid of it since it is sucking money away from them.

If the easement laws are in your favor, then this acre could used in a game of musical chairs where it is passed on to unsuspecting buyer to unsuspecting buyer.

However if the laws dictate you are required to give passage to the new owner you might consider purchasing that property to protect yourself.

Once again, I implore you to consult a lawyer, particularly one that specializes in zoning and easement law and you should also check with your local government what the laws are regarding easements before taking any action.

Below is a link regarding easements.

My information on auctions is quite limited so I am unsure what their back up plans in case no bids are made. I do know that their business model is simply buying as much cheap land as possible and then utilizing the irrational exuberance of an auction to jack up the price of the property. They are sort of like the "National Liquidators" of real estate so they do not make any money if they have to hold onto the property so whether they buy it for a buck or a billion they need to get rid of that property.

I would also recommend contacting your local government to find out how that acre was sold to give you better insight on the process.