If you've been in search of a home, you may have encountered some homes for sale that are scheduled to be auctioned to the highest bidder. These homes often have shockingly low starting bids, and you can't help but wonder if they are actually a great deal. Caution should be urged when dealing with home auctions, so read on to learn more and proceed carefully.
Often, these homes are bank-owned, meaning that they were foreclosed upon when the previous owner failed to make their payments. Since banks are not in the real estate business, they contract large national auction concerns to rid themselves of the property in the least expensive and quickest manner possible, by auctioning it off.
Pay attention to the fine print
When dealing with auctioned homes, it pays to read all the information available about the home, the terms of the auction and more. You may notice a lot of rules and financial information, but not a lot about the house itself. In many ways, auctioned homes are "what you see is what your get", with the auction company providing little to no information. In many cases, there's not even photos of the home online. It should be noted that it is nearly unheard of to be able to actually go inside an auctioned home prior to bidding on it; you will have resign yourself to window peeking only.
Get a home inspection
While this aspect can vary, you may be able to get the home inspected before you bid. While most people would never even consider purchasing a property without an inspection, it is even more important when it comes to auctioned homes. Keep in mind that these homes are foreclosures in most cases, meaning the owner would have stripped the home of valuable items before moving out. If you are not careful, you could end up winning a home that has no HVAC unit, electrical wiring, hot water heater, and more.
Have some cash at the ready
Nearly all home auctions require you make a deposit on the day of the sale. The amount required is normally a certain percentage of the home's value, for example 5%. The real issue for some buyers is what happens after the sale. Unless you have arranged what is called "hard money" financing for your auction win, you will have a certain amount of time after the auction to pay the remainder of the funds due. Make sure you are prepared for in advance and understand that most lenders are reluctant to lend money for auctioned homes. Additionally, most auction companies charge a buyer's premium, which is a service charge based on the home's winning bid.
As you can see, buying a home by auction is not for everyone. Talk to your real estate agent about this issue before you bid.