Everything You Think You Know About A Real Estate Auction Is Wrong
Posted on: 22 March 2023
More and more people are eyeing real estate auctions to purchase a home. While there are many advantages to purchasing a home through an auction, there are also some things potential buyers need to understand to manage expectations. Here's a closer look at some important things you need to know about real estate auctions.
No Such Thing as a $100 House
It's easy to get swept up in the possibility of buying a house for pennies on the dollar, but it doesn't happen. Many people mistakenly believe that they will be able to purchase a home for as little as $100 at an auction, but this is simply not true. Just because a home is being sold via auction does not mean that the seller is willing to accept any offer that comes their way. It might not even be a 'distressed' sale. Some savvy sellers choose to sell their homes via real estate auctions to drum up excitement and get offers above the market value. In any case, there is likely a reserve, which is the minimum price that the seller has set. If the reserve is not met, they will not sell the house.
Buyer's Premium
The price the gavel slams down on at auction is not the home's final price. The winning bidder must pay a buyer's premium, a percentage of the purchase price. This fee is paid to the auction house and is typically used to cover their expenses, such as advertising, commission, and administrative costs.
Inspection Period
Every real estate auction has an inspection period. It could be by appointment with your real estate agent for weeks before the auction or a free-for-all in the hours before the auction. If you are serious about bidding, take time out of your schedule to see the house during the inspection period, preferably with a licensed home inspector. All sales are final, and you do not want any surprises later.
Back Taxes, Overdue Bills, and Liens
You must perform due diligence before the auction by checking with the city, county, or state regarding any unpaid property taxes, overdue water bills, or liens on the property. These bills are typically attached to the physical house, not the previous owner. In other words, if you win the real estate auction, you will be responsible for paying those bills in full.
Payment Due
Many people don't realize that payment for successful bids must be made immediately after winning the bid. Real estate auctions are typically cash sales. There is no time to line up a mortgage and wait for closing. In fact, many real estate auctions will require proof of funds from your bank or financial adviser for you to even receive a bidder's paddle.
Purchasing a property through a real estate auction sounds exciting, but fully understanding the process is crucial to your success when the gavel drops. For more information on real estate auctions, contact a professional near you.
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