Posted on: 24 July 2017
You have very likely ran across properties being auctioned off in your search for a new home. At first, these homes seem to be unbelievable bargains, with auction minimums starting at very low prices. Everyone wants to get a good deal on their new home, and the savings of even a few hundred dollars could end up costing you so much less over the course of the home loan. Are these auction properties really the bargain they at first appear? Read on for what you need to know before you bid on one of these properties.
Why auction off a home?
If you've been searching for homes sold the conventional way, you may be in for a big surprise when perusing the auction listings. The ads for these homes often give very little information about the home, and you may be lucky to see any photographs at all. These homes end up being auctioned, in most cases, because of foreclosures. Banks or lenders who own these homes turn them over to auction companies to get them off their hands, and to try and recoup some of the money lost when the original buyer walked away from the loan.
What you need to know.
While the details about the home you are interested in itself may be somewhat sketchy, you will eventually be confronted with quite a bit of fine print and rules about the home auctioning process. These rules can make a conventional home buying experience look like a walk in the park. You might see, for instance, the following provisions on an auction website or in an information packet:
Taking a look around.
In most cases, potential bidders are not allowed to walk through the inside of a property. You must resign yourself to looking at the meager photographs of the inside or looking through the windows of the property to view what you are able to see. On the plus side, you are permitted to have a home inspection performed before you bid on it.
The home inspection.
Home inspections can be expensive, usually costing several hundreds of dollars. With a conventional purchase, you may be able to put some contingencies in the sales contract allowing you to get your deposit back if your home "fails" the inspection. The money spent on a home inspection is well worth it if it prevents you from purchasing a property that will need expensive repairs at some point. Any negative findings from the home inspection can also be used as a bargaining chip to help lower the cost of your home.
With an auctioned property, it works a bit differently. You can still hire an inspector to take a look at the property, but if problems are found, you won't be able to use that information to negotiate a lower price and you will have lost that money if you end up not bidding or losing out on the sale.
Dollars and cents.
Additionally, the apparent bargain should be weighed with the fee added to the your winning bid price for the property, which can be a percentage of the home's cost. You should also understand that you often must have a large amount of cash on hand on the day of the auction as a deposit on the home, which you will lose if your financing falls through.
Be sure to talk to an expert, like one at RE/MAX Orange County East, about your home-buying options. Speak to a Realtor before you make a big, expensive mistake bidding on an auctioned home.Share