Are Auctions a Good Buy for First Time Homeowners?

Real Estate Agent with Keller Williams Realty Cityside

I just took a call from a first time home buyer inquiring about a short sale property I have listed. It is a short sale, and the bank has insisted on a period of auction. That's a story for another day!


The buyer then asked if I knew of other auction properties in the area. She wanted to find a good deal and thought an auction was the best way to find one.


Auctions aren't necessarily a good deal, especially for first time homebuyers. Auctions typically require a 3-5% buyer premium to be paid on top of the winning bid price. The ones I've looked into also require a significant NON-REFUNDABLE earnest money deposit. I've seen anywhere from $2500 to 5% required. That means there is no contingency for an inspection, an appraisal, or financing issues. Once you win the auction, your problems are just beginning!


It is difficult to obtain financing for a home that is in disrepair, as many auction home are. With sufficient cash reserves and good credit, a renovation loan is possible, but takes time. Many auction sites aren't willing to extend you that time. 


For an investor that has cash available and knows what they are getting into, it can be a good deal. For a first time home buyer, I think its a really scary proposition! You stand to either lose a significant amount of money or be stuck purchasing a money pit. 


Buyers agents are free to the buyer. What a deal! Find a fantastic agent to help you navigate the market, avoid pitfalls, and protect you and your money in the most important transaction you'll ever do. It's what we are trained to do, and if you are a first time home-buyer with realistic expectations and a prequalification letter, it will be our pleasure to work with you to find your first home!

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Comments (1)

Raymond E. Camp
Ontario, NY
Licensed Real Estate Salesperson Greater Rochester

Good afternoon Shelly,

I have noticed quite a few that say they are pending sold and show up later and raise yje price.

Make yourself a great day.

Jul 30, 2014 04:26 AM