Are auctions the new way to sell languishing lender owned inventory? You see the ads on television for Auction.com, advertising paying pennies on the dollar for real estate. In the next week, there are four auctions with three separate auction companies holding sales in our area. Most are Fannie Mae properties, but not all. Pulling the MLS listing on them shows they've been listed anywhere from 90 days to almost a year without offers.
An auction can be a daunting proposition for both buyers and their agents. First - the big shocker for the agent...the commission. Two of these companies (www.auction.com and www.williamsauction.com) compensate a licensed agent 1% of the transaction or $400 - whichever is greater. WOO HOO - call an armored vehicle to take me to the bank! The third one - www.hudsonandmarshall.com , gives an agent 2 or 2.5% depending on the property. Each has very exact rules regarding registering your client to get paid. If you don't do it correctly - kiss that big commission good bye! When they say register 24 hours prior to the auction, they don't mean the day before. They mean a MINIMUM of 24 hours and counting. You also must accompany your client to the auction and check in with your client. (Rules are slightly different for the on-line auctions, so read the rules!) The good news - the auction house does all the paperwork.
Each auction house is different and reading the entire terms and conditions for each property your client is interested in bidding on is a must. A buyer's premium is typical - the amount however varies. Williams Auction uses either $3000 or 5% whichever is greater while Hudson and Marshall charges a straight 5%. This is added to the highest bid. All require earnest funds (cashiers check or cash) to be paid immediately after the auction. All sales are as-is, where is. And the big kicker...NO INSPECTION PERIOD after the sale. As in, you better check things carefully during the open houses before the auction (and allow $$ for repairs after the sale) because there is no cancelling the purchase after the auction without losing your earnest funds as liquidated damages.
The contracts I've seen call for close of escrow within 30 days and carry a per diem fee for delays. There is no financing contingency either so you better have your money lined up prior to bidding or you will lose your earnest funds! If you are financing - make sure there are no issues with the property that could kill your financing. Getting an FHA or VA appraisal scheduled and closed within the 30 days may be difficult. Go through the property and look carefully for items the appraiser would require fixed as a condition. Remember, as-is/where is - there will be NO REPAIRS. It might be better to pass on a property if you aren't sure.
One positive with buying a property at auction rather than trustee sale - you get a marketable title with title insurance. All liens, HOA fees/assessments and back taxes are paid at escrow. When you buy a trustee sale - you buy it with whatever baggage is on the title report.
My advise for anyone considering buying a property at auction - DO YOUR HOMEWORK! Read all the terms and conditions, read the sample contracts. Go to the open house and do the best inspection you can considering the constraints. And pay attention to this comment: DON'T get caught up in the excitement of the auction. Set your top dollar price and don't go over. Don't think "it's only $1000" because then it's 2...3...4,000 more than you should have spent. And agents - have your comps ready!
Buyers can get a bargain buying at auction - but there are risks and you need to do your homework first!