Auctions can be an attractive way to buy a home for many home buyers. After all, you may get a property at well below its market value. That’s the hope, at least.
There are indeed some benefits to auctions. There’s a possibility of a good deal because you may face less competition compared to buying a home the traditional way. But there are also many pitfalls homesellers need to be aware of.
It’s always best to work with a professional real estate agent on what will likely be one of the most expensive purchases of your life. A trusted agent will make sure that your immediate and long term interests are not put in jeopardy with a risky sale, such as some found at auctions.
Here’s everything you need to know about house auctions.
How Do Home Auctions Work?
Most of the homes that you’ll find up for auction are foreclosures. Banks and lending institutions that put the homes up for auction are hoping to get the most of the homes to recover on defaulted mortgages by borrowers. They are also hoping to unload the homes in the fastest and most convenient manner possible. Auctions allow them to do this, and that presents an opportunity for home buyers to get some great deals.
There are many stories of people buying homes at auction at well below their market value. This does happen. Many homes up for auction do not have a minimum sale price. These are usually properties from sellers hoping to attract more bidders. So, there’s a trade-off. The seller is hoping more bidders will mean a higher selling price in the end based on the fact there’s more competition. But the trade-off for the seller is that he or she could also end up with a “highest bid” that is well below what they were hoping for.
House auctions may take place online (lasting several days) or they may be held at a physical location such as a government courthouse or hotel conference room. In-person auctions are usually completed on the same day.
Before you decide to participate in a home auction, whether it’s online or in person, you need to be aware of some requirements. Most foreclosure auctions accept only cash, cashier’s checks, or a bank money order. In most states, you need to pay the full amount of the purchase price immediately after the auction closes. Exceptions may be allowed for payment the following day.
Foreclosure auctions also require a substantial deposit, which is refundable. The deposits can range anywhere from 5% to 10% of the property’s expected selling price. The deposits are usually made to the entity running the auction.
A buyer must also be aware that a seller does not have to accept your offer, even if it’s the highest bid. These types of auctions are called Lender Confirmation Auctions. In absolute auctions, the property goes to the highest bidder.
What are the Pros of Home Auctions?
While buying a home at auction can be risky. There are some attractive aspects of the process for homebuyers. For one thing, auction properties have less competition than other home sales methods.
Home auctions allow for the prospect of purchasing a property at well below its market value. While there may be less competition from other bidders, you should expect fellow bidders to be well informed about auctions. That’s because they are often experienced investors. In other words, you will find yourself bidding against people who are likely much more versed about the values of the properties that they’re bidding for than you.
Also, much of the hype around home auctions occurred around 2008 when the housing crisis peaked. That’s when it was possible to see homes going at auction for 50% of their previous value (and sometimes more).
But the buyer’s market at auctions has been over for quite some time. There are still good deals that are possible if you have timing and a bit of luck. But auctions don’t guarantee that the highest bidder will necessarily end up with a hugely discounted home.
What Are the Risks of Buying a Home At Auction?
Buying a home through auction is much riskier than buying a home through a professional agent. Remember, this is the biggest home purchase that you will likely ever make. So, it’s important to understand the pitfalls of buying a house at an auction.
One of the main things you should know is that the chances of buying a home that could end up being a money pit is far greater at an auction. First off, you may not even be able to view the inside of the property up for auction. There are rarely “Open Houses” for the properties on sale at auctions, and chances are that no one will walk you through the home.
Without an onsite evaluation, any projections of valuation of a property or its future growth potential can be inaccurate. Just as problematic, if not even more troubling, is the fact that, more often than not, you will not be able to conduct a home inspection on the property.
A home inspection is vital. Without one, you may end up buying a home that may end up costing you thousands of dollars in repairs. It could even become unsafe to live in.
Home inspectors look for cracks in walls, damaged or missing siding, any damage to the roof, and signs of damage to the property and attached structures such as garages. When it comes to the foundation, they will look for visible cracks and any damage from the root systems of large nearby trees.
In the interior, a home inspector will look for leaks in faucets or toilets. They will also check for any fire hazards and test the heating and ventilation systems. They will also examine the hot water tank and plumbing systems.
The cost of repairs to any of these could end up costing you thousands of dollars if not much more.
If you’re thinking of buying a home in through an auction, you must factor this in. Ask yourself, are you willing to buy a property without conducting due diligence? After all, a home purchase will probably be the biggest investment you will make in your life.
Talk to A Professional Real Estate Agent About Your Options
The best way to assess an auction property is to work with real estate agents, appraisers, contractors and others who understand construction and remodeling costs and can accurately estimate the property’s value and the cost of the work it needs.
After all, it’s important to have someone on your side who knows how to make a great deal and save you money. That’s why it’s in your interest to work with a professional like a Clever Partner Agent who can guide you through the entire home buying process.