Six Things To Know About Foreclosure Auctions
“What do you think of buying at a real estate auction?”
***ANSWER:
There are different kinds of real estate auctions, including foreclosure sale auctions, probate “auctions” (called overbids), and auctions put on by private auction firms.
We’re actually involved in one of the latter that’s happening tomorrow.
Here are six things you should know in general about auctions:
#1: Most or all by private firms have a “buyer premium”, often 5%. So if your price is $500,000, add 5% to make it $525,000.
#2: Some have a reserve price. That means the seller may advertise starting bids at temptingly low prices. The only catch is you can’t actually by them at those prices. It’s a generally accepted practice. I think it’s misleading.
#3: In almost all auctions, if you don’t close, you lose your deposit. So even if you cancel due to loan problems or defects you find in the home, you can kiss your deposit goodbye.
#4: In some, such as foreclosure sale auctions, you must pay all cash in the form of a cashier’s check.
#5: In some cases you cannot view the property before you buy it.
#6: In some cases the property may be occupied. And if those occupants are the previous owner or anyone unhappy about the situation, you’ll have the fun and expense of evicting them.
I’ve been a real estate investor for 20 years and I’ve never bought a property at an auction. I’ve bid before, but only after doing my due diligence and factoring in what I call the “likely worst case”.
More Information On Buying or Selling Investment Property
August 30th, 2007 at 5:27 pm
One additional item to add to the list for foreclosure sale auctions is some states have a statutory right of redemption. In Kentucky as an example, if the home sells for less than 2/3 of its appraised value, the person that lost the home can buy the home back within 1 year for the purchase price plus 10% interest per annum.
So, continuing with that scenario if you bought a home under those circumstances - and put in new floors, plumbing, electrical, tile, kitchen, etc., make sure you get a big thank you from the guy thats buying it back for the original price plus 10% interest per annum, because you aren’t getting any of the additional money you spent back.