Real estate auctions have become more popular in recent years as they were used to unload a great number of foreclosures that we had in the marketplace during the recent recession. Before you head out to an auction to buy a property, here is some helpful information that you should know:
There are 2 basic kinds of real estate auctions: (1) a county foreclosure auction and (2) a 3rd party auction that is run by a separate for profit auction company. The process and things to know differ for these so I will address them separately here.
Regarding the county foreclosure auctions: In the state of GA, these auctions are held on the 1st Tuesday of each month at the county courthouse for the county in which the property is located. For example, in Cobb County GA, the auction would be at the courthouse in Marietta Square. When buying a property at the county auction, buyers need to be aware of the following:
1. All sales are 100% cash only (no financing available) so if you plan to buy a 150K home, you must have a certified check for 150K in your pocket when you head out to the auction and pay immediately upon becoming the winning bidder.
2. Many homes appear on the auction list right up until auction day and never actually get auctioned; so any work you do to investigate and examine a property prior to the auction date may be a complete waste of time and effort if the property you are seeking to purchase gets pulled from the list at the last minute as many do.
3. All sales are completely as-is with no refunds or exchanges. You have to buy the properties without even getting a chance to see them and assess the condition. You can, of course drive by and see what you can from the outside; but you can’t get in to tour the home and you can’t do any formal inspections.
4. When you purchase at the county auction, you inherit any liens that are on the property as well; so if the previous owner did not pay their property taxes for 5 years, you could be on the hook to pay that bill. It is up to you as a buyer to do your own title work to make sure you know what liens you will need to pay off and account for them in your maximum bid price.
5. If the home you purchase is still being occupied by the previous owner who has overstayed their welcome, it will be your responsibility to go through proper legal procedures to get the previous resident removed from the home. This may require legal expense if you are not familiar with the process.
For the reasons above, many people; especially first time investors and owner occupant buyers find it impossible and/or undesirable to buy at the county auction.
The other type of auction is the 3rd party auction held by for profit auction companies like Auction.com. Some of these auctions are held online and some are in person at a convention center or similar location. The rules and fine print varies from auction company to auction company; but it is somewhat typical for them to have the following rules (though it is possible a particular companies rules will differ and I encourage you to check the web site for the sepcific auction company that you are considering purchasing from to find out what their rules are. Nonetheless, most require:
1. Preregistration – you must sign up for the auction in advance and this sign up process sometimes requires a fee just to register. Even if no fee is required, they likely will require submission of proof of funds or preapproval with an approved lender if financing before even allowing you to register.
2. Many charge a premium on top of the price you bid (average of 5-7%); so if you bid 200K for a home, that will really likely require 210K – 214K to commence the deal when you add the buyer fee into the mix.
3. Unless the auction is being presented as an “Absolute Auction”, the seller is not obligated to sell. That means they essentially have a secret eBay style reserve price and if the proeprty doesn’t get bid up to that price or higher, they will not agree to sell to you even if you are the highest bidder. They will not reimburse or compensate you for any time you or money you wasted registering for, traveling to, and attending the auction.
4. Most homes sold at these auctions are sold as is with no refunds or exchanges or due diligence period. You can, however usually get in to see the property prior to the auction at specified buyer viewing times. However, inspections cost money so you either have to spend money on inspections, surveys, appraisals, etc. for a home you may not be able to buy or forfeit the ability to do such inspections.
Occasionally, people get some good deals at auctions; but before heading out thinking that it’s an easy path to a below market value home, you should take these things into consideration and make sure to ask the correct questions up front before signing up for a particular auction.
If you are set on going to an auction in spite of all of these risks, it is possible to have an agent represent you at many auctions provided that you initially register for the auction through your agent. If you have interest in this, you can contact me and I will be glad to help you if the particular auction you are interested in allows for buyer agent representation.