A home just down the street from me went to auction this week, and I stopped by to check it out. Most of us in the North Lake Tahoe area – agents included – are new to real estate auctions. We’ve been lucky in that our market has not been as distressed as so many others until more recently. So this was a good chance to find out more about the process. And what I found was that it is a bit more user friendly process than I originally thought.
Driving by recently, I noticed auction signs up at the property giving website information for the auction firm and the auction day/time. There were two viewing periods prior to the auction so potential Buyers could personally inspect the property. Generally, these inspection periods will be the two weekends prior to the auction. The home is open then and a security guard is present for you to spend as much time as you want checking out all the nooks and crannies.
Auctioned homes are sold “as is” with no warranty or bank liability for their condition, so it’s a great idea to personally check them out, as well as seek access to any public records on the property through your local authorities and title company. You’ll want to find out if there are any easements on the property, for example, or whether any work done on the property was done with the necessary permits. You can buy an auctioned home with the aid of a licensed realtor, with their commission being paid by the bank, and this is where it really makes sense to do so! A licensed realtor will know what to look for in a property so you truly can make an educated decision on whether the particular property is right for you – or not.
On the day of the auction, most Buyers are shocked by how quickly the auction itself goes. When you arrive, you register with the auctioneer and get a bid card. You’ll need your driver’s license and will need to fill out some simple forms. Registration is usually open from 2 hours to 30 minutes prior to the auction start time. There is no fee to register at the auction and high bidders may use cash or personal checks for down payment. You can also get all last minute questions answered and tour the home one final time if you wish.
The auction begins promptly at the appointed time with opening remarks summarizing, for the record, the terms of sale, the methods of bidding and any last minute changes or disclosures. These comments usually take only a few minutes, concluding with the auctioneer answering any final questions. Then the bidding is ready to begin!
As it turned out, there were two homes being auctioned this day – the one we were at and another one in another town. I wasn’t prepared for that option but apparently it is not unusual. Another interesting part in this particular auction was that there were 2 auctioneers. One was taking the live bids and controlling the bidding, and another was on the phone getting reports of bids being made on the property on-line and yelling the bids out for all to hear. That’s right! You can buy your next house on the internet!
At this auction, both winning Buyers for the two homes were there in person. The home we were at was previously listed as a bank owned property at $329,900, and sold at the auction for $200,000.
The Buyer pays the third party title examination fee (typically $150-250), the title search fee (if required, typically $150), the title insurance premium (based on sales price, typically a minimum of $250 plus approximately $5 additional for each $1,000), and 1/2 the closing fee. Current year's real estate taxes are usually pro-rated through day of closing. These costs to the Buyer will usually total a minimum of $1,500 (consult the Contract of Sale as amended for the auction and/or other documents or announcements regarding the sale for each property's specific instructions regarding closings costs and tax prorations).
Most auctions will require the Buyer to make a cash deposit at the auction (personal checks are accepted and electronically processed for immediate deposit) for at least 5% of the purchase price ($2,500 minimum) or in some instances 10% of the purchase price ($5,000 minimum). If you are unable to complete the sale for any reason, you will forfeit this money to the auction house.
What surprised me most was that you can still buy an auctioned home with a home loan. I guess I assumed they were cash (or its equivalent) sales. Buyers should take all steps needed to secure the necessary approval prior to bidding, since auctions are never contingent on financing. There are many lending institutions that offer pre-approval for their financing before an auction.
Of course, there is a lot to the process that can’t be discussed here in the interest of time. There are many auction sites available to check out and use to familiarize yourself with the process. Most have very detailed explanations of their particular process. Plus, you can register on their site to receive notifications of auctions being held in your area. But bottom line, the opportunity exists to purchase a home at rock bottom pricing and there are deals to be had out there. Happy hunting!
