Are Real Estate Auctions good for me? That is a question that is often raised by our clients and our answer is they can be if you have the stomach for it. We can find SCREAMING deals through these auctions; however, there are a number of things that have to be considered:
Most auction companies have similar terms to the ones outlined below:
For instance, Hudson & Marshall will require the greater of 5% of the purchase price or $2,500.00 as Good-Faith-Deposit if you are the successful bidder. They also require that you bring a minimum of $2,500 in the form of Certified Funds or Cash, just to bid in the auction. Another auction company, REDC, will require the greater of 5% of the purchase price or $5,000.00 as Good-Faith-Deposit if you are the successful bidder on your first property and the greater of 15% of the purchase price or $10,000.00 as Good-Faith-Deposit if you are the successful bidder on any property after the first one.
The purchase of auctioned homes are treated as cash transactions which means that the purchase is not contingent on loan approval. If you are not be able to obtain financing after being the successful bidder, then you forfeit all of your good faith deposit.
Homes purchased at auction are purchased in an “As Is-Where Is” condition. This means two things: What you see is what you get AND Buyer Beware. This criteria is not because the seller is trying to hide anything, it’s only because these properties were acquired through a foreclosure action and the seller (usually the bank) does not have any knowledge of the condition of the property.
To protect itself and its agents, the bank will utilize its own contract where it outlines, over and over again, that the seller and its agents cannot make any warranties or representations about the condition, title, location, or anything else associated with the property.
Once you have bid, you waive the right to cancel the transaction based on any condition of the property. So if you desire to bid on a particular property, it is highly recommended that you do a personal inspection of the property prior to making bid on line or at the live the auction. Once you are the successful bidder, the good-faith-deposit is not refundable on the basis of the condition of the property.
The seller will choose the closing agent and will pay for the title policy.
The total price paid for a home at auction is the high bid amount PLUS a buyer’s premium fee of 5%. In other words, if your highest bid is $146,000, you must add 5% of $146,000 to the total purchase price making your total purchase price $153,300. That 5% is the fee collected by most auctioneers and it stays with them.
Any commissions for a purchase at auction are paid by the seller and it does not affect your bid. That just means that if a buyer does not have representation, the bank, will get more than it budgeted for.
Most auctioned properties are sold under a RESERVED AUCTION procedure. The bank provides an UNPUBLISHED minimum bid that it will accept for each property ahead of the auction. During the bidding, if the current bid meets the reserve price, the auctioneer will cry out: “this property is now an absolute sale”. This lets everyone know that if they bid from that point on, the final bidder has an automatically seller approved price. Unless the auctioneer declares that the reserve has been met in this fashion, ALL other winning bidders have to wait for the seller to give their approval for the sale at the top bid price. This approval can take 10 minutes if a bank representative is at the auction, or up to a week if the selling bank is not at the auction. Therefore, the officers of the bank must review the highest bid and determine if they want to accept it, reject it or offer a counter-offer to the highest bidder.
To gain access to the properties, it is much easier to work with a buyer’s agent who can easily arrange the viewing of the properties. If you do not feel comfortable having representation, then, you must wait for the open houses that will be held by the auctioneers...
DO YOU NEED A REAL ESTATE AGENT TO BUY PROPERTIES AT AUCTION?
Although is not required to retain the services of an real estate agent to buy properties at auction, it is highly recommended because of the additional risks in buying at auction. A good agent will help you consider all aspects of buying at auction, provide you with updated pricing information and give you pointers on auction behavior. Your buyer’s agent can also give you access to homes you want to bid on at your convenience, not only during specific open house hours.
After you succeed at being the high bidder, your agent will know how to navigate through the process to make the transaction as smooth as possible. But buying ANY bank-owned property takes patience! The sellers are large companies that are not emotionally involved in selling the homes.
Buying a home is stressful as it is, but if you take it on your own, the stress can be exponentially multiplied. With professional guidance, you will get a great deal, approach home auctions like a pro and buy a home that really fits what you want.
Posts
