If you are in the market for a home, you have likely run across homes that are being auctioned off. These homes appear to be fantastic bargains; after all, how else could you buy a home for pennies on the dollar? If you are seriously considering using an auction to buy a home, especially if you are a first time home buyer, you are urged to use extreme caution and do your homework. To learn why these homes are not the bargains they appear to be, read on.
Reading the fine print
Often, large nationwide real estate auction companies are in charge of getting rid of lender-foreclosed properties, and they are hired to bring in as much as possible as quickly as possible to help the lender recoup some of the cost of the bad mortgage they made. While that may mean that houses have every appearance of being sold for super low prices, this method of home buying also carries a lot of risk.
Once you contact one of the auction companies, you will likely be provided with a sheath of paperwork or a website with pages and pages of rules and regulations about the home auction process. If you were looking for more information about the specific property, you can likely forget about it; what you see is what you get. It is not in the interest of the auction house to provide potential buyers with information. Here is a sampling of rules that come with your bid for a home:
Conducting home inspections
When you buy a home traditionally, you hire a home inspector after you have viewed the home and negotiated a good price with the buyers. Home inspections cost hundreds of dollars, and they are worth every penny, but when you are dealing with a home auction, it works differently. If you want to have an inspection done, it must be accomplished before the auction takes place. While this does protect potential bidders from homes with expensive repair issues, it also means that if you end up not bidding on the home, or if someone else ends up winning the home, you are out the money for the inspection.
Viewing the property
Most people would be shocked at the thought of buying a home without even walking through it, but if you want to buy a home through an auction that is exactly what you must do. You may be able to peek into the windows or view some photographs, but that is the limit of viewing you will be able to do.
Having funds up front
This one catches many potential home buyers off-guard, but you must be prepared to come up with a large amount of cash for a deposit on the day of the auction. This amount is usually a percentage of the home's estimated value, but you can count on it being thousands of dollars. You must, of course, provide a good faith deposit if you make an offer on a home, but it is seldom more than a few hundred dollars.
Remembering the buyer's premium
This is a fee added on to your bid price (if you win) and is usually a percentage of what you are paying for the home.
There is no substitute for using the services of a real estate agent to assist you every step of the home buying process. Don't get caught in the trap of a false bargain.Share