Auctions are different
If you are home shopping and come across a home for sale at an auction website, or if you are thinking of selling a home through an auction, there are some requirements and conditions that are quite different from a traditional home sale so before going that route, you really need to understand what you’re getting into. I’ll go over all that so stay tuned.
I’m Jana Klaasse. This is my husband Paul and we are realtors here in the Eastern Panhandle. We do a video every week on buying and selling so if you subscribe and click the little bell, you’ll know when a new video comes out.
Auctions are usually transparent
The one thing I like about auctions is that most of them are transparent – you’ll be able to see the other bids and where you are on that list – if you’re the highest or not. And theoretically bidding against other bidders should produce the highest price the market will bear. So that part should benefit buyers because in a traditional sale you don’t know if you bid too much or too little. So that’s the benefit. But there are some drawbacks.
Usually require non-refundable deposit
The biggest one is the requirement for a non-refundable earnest money deposit from the buyer – and that’s part of most auction sales. That’s going to knock out quite a few buyers especially if it’s a large amount. One of my clients – a seller – had an agreement to sell their house via auction. The auctioneer’s isting required a non-refundable 10K deposit from the buyer. So buyers didn’t exactly line up the driveway for that. They got one offer that was way lower than the listing price. It took the sellers a while to get out of that agreement with that agent/auctioneer. The sellers called us and We listed it on the MLS and the house sold in a few days. So that non-refundable deposit requirement pretty much nullified any benefit you’d see from the transparency.
No financing contingency
Another drawback – there’s no financing contingency. So if you are getting a loan, you’ll still be able to put a contract on the house, but you won’t be able to get out of the contract if, for some reason, your financing falls through. So if that happens, you’d loose the house and your earnest money deposit. Also, most auction contracts specify a closing deadline so if closing is delayed – which is pretty common – then you could loose the house and your earnest money depost. So in this case if you do decide to pursue an auction sale and are getting financing, you’d want to check with your lender that the loan is solid and that he can get it done within the timeframe specified in the contract.
No home inspection contingency
Here’s something else. Most Homes sold at auction do not have a home inspection contingency of any kind. So in order to assure yourself that there’s no major problems, you’d need to inspect the home before putting in an offer. If you get the inspection after you put in a contract and then discover something you can’t live with, you’d loose your deposit. Sellers are supposed to disclose problems they know about but usually buyers still want to get an inspection with an opt out condition. That’s usually not an option in an auction sale.
Another thing to be aware of is to be sure there is clear title being conveyed so always do a thorough title search to make sure there are no liens that will convey with the property.
There are 2 types of auctions – absolute and reserve. .
Absolute means the property is selling, regardless of price, to the highest bidder with no limiting conditions. “also referred to as No minimum/No reserve” Reserve means the seller has the right to put a “reserve” or bottom dollar on the amount the property will sell for.
Could be a good deal
Lots of buyers believe that buying a home at auction is how to get a good deal. And that’s true in a lot of instances. Often foreclosures or bankruptcies are sold through auctions – but not always – sometimes a home owner will go that route for an inherited home or if they want something uncomplicated. It is easier on the seller, but the lack of any contingencies reduces the number buyers that would otherwise be interested in your home.
From what I’ve seen, investors or flippers or contractors – people familiar with homes and the housing market and are paying cash end up buying homes at auction for the most part.
If you are a first time home buyer or not too familiar with the process, then it’s especially important to educate yourself on what’s involved when you buy a home at an auction. There’s usually a link on the auction website disclosing the terms for the sale of any property they have listed – if not then check with the agent before proceeding with an offer.
