You hear about a great home being offered at a real estate auction for a fraction of what it should sale for. This must be a great opportunity, right? Not necessarily. You may remember seeing sitcoms where someone at an auction accidentally coughs, scratches his head, etc. and then ends up purchasing the auction item at a price they did not want. Then the rest of the TV show we see them scrabbling to get out of the purchase. Similarly, with real estate auctions, a Buyer can unknowingly sign-up for a purchase they are not prepared to make. Thus, it is extremely important for Buyers to understand all the terms of that particular auction house before bidding as the process can be significantly different than a typical purchase from a homeowner.
For example, the auction company may not allow you to have an inspection period after you bid. Many auction houses require that you do your inspection prior to the auction during their open houses or by appointment. Without this inspection period, if you discover a problem in the home after you have won the bid, you may not have the right to cancel or receive a refund of the earnest money you put down at the auction.
Another point of caution is that some auctions require that at least 5% of the final sales price be submitted immediately after the auction. In many instances, this down-payment is non-refundable. This is very different from a typical purchase with a homeowner as you typically will have at least 24 hours to submit the deposit (in some cases up to a week) and the down-payment may only be 1% of the purchase price or less.
What if the home/condo/townhouse has a Homeowner's Association (HOA)? Even if you have not done your research on the community/subdivision prior to the auction, you will still be bound to the terms of that HOA. Many HOAs now require an initiation fee and sometimes several months or even the whole year has to be paid in advance at closing. It is very important to do your homework first!
Auctions indeed can be a great time to get a phenomenal bargain on real estate but please be an informed buyer and find out the terms of each specific auction company that you desire to place a bid with. For more information on participating in real estate auctions, contact places2love@gmail.com or 404.444.5777. Happy house hunting!
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