Real Estate Home Auctions have always existed from Sheriff’s sales to tax sales and the traditional “on the lawn” auction, but to buy a home at auction in today’s auction environment, there is a lot to know.
What you need to know about home auctions:
1. Advertised prices are OPENING BIDS not the acceptable reserve price – usually will sell for 30-50% more.
2. No contingencies for attorney review, inspection or mortgage approval.
3. If you don’t buy after contract, you will lose your earnest money – usually around $2,500.
4. You often will be required to pay a buyer fee or premium up to 5% of the purchase price.
5. Some home auctions will not allow any utility turn on to inspect home – buyer beware. NO FHA loans then.
6. You may not be able to see the home. Some are site unseen purchases. Appraisal could be an issue.
7. Some home auctions will have properties that the condition may not be loanable.
8. Contracts are not subject to change – again no attorney review.
9. Home auctions will not allow longer than 30 days to close. Lenders often can’t do that.
10. Some home auctions still have occupants in the home that the buyer will have to legally remove.
11. Home Auctions sell homes based on reserve prices that are minimally acceptable to the bank/seller. You will never know that amount.
12. You can bid online and there is no charge to bid.
13. After unknown reserve price is met, top bid wins.
What homes are sold at home auctions? The past 5 years have changed the way home auctions are done. Foreclosures and now even short sales are regularly put into home auctions by banks to quickly reduce inventory with market time. Each bank or government entity has their own policies and procedures, but most banks put the least marketable homes in home auctions. Some banks use home auctions for overflow houses that they want off their books quickly. So contrary to prior years, some home auctions have homes that are in decent areas and are not total gut jobs. It just depends. Some homes that are even occupied are sold at auction, which require the buyer to legally remove the occupants and purchase site unseen.
Home auctions also provide an ability for bids to increase the competition and SOMETIMES get close to market value. While deals exist in auctions, the price advertised on the internet is the opening bid, not the accepted price. Contrary to traditional home sales, the advertised price is usually 30 to 50% lower than the reserve “acceptable” price the bank will allow for the home. Banks usually want a reasonably close to market price for the homes. The past sales price and the area market values can give you an idea of what the bank will accept for the home.
Buying a home at a home auction is not a traditional sale and it does not have the same contingencies in a traditional purchase. Auctions are really designed for cash-buying investors, but it is possible for a regular buyer to buy at a home auction under circumstances but are always at a higher risk. You will have to pay a deposit at bid win and this will not be refundable. So if you don’t get a loan or if you find a dealbreaker at inspection, you lose that money. Usually minimum $2,500, so a lot to lose if something happens. And if you don’t like the contract, tough. No attorney review. You need to go in with eyes wide open and get expert help from a Realtor who understands auctions and the market to give you the best advice.