Q: I've never attended a real estate auction; how does the process work?
A: Buying real estate at auction is a very simple process. However, it is important for you to be informed and prepared prior to auction day. You should inspect the property prior to bidding on the property during one of the scheduled preview dates. The only way for you to make an informed decision when it comes to bidding and buying is to not only visit, view and inspect the property prior to the auction, but also view any property information and disclosure documents pertaining to that property. Do your investigation. Make your inspections. By registering and bidding at the auction, you are representing that you have not only viewed the property prior to bidding, but have also inspected, reviewed and accepted all relevant property information you deem necessary to make an informed decision. The properties will not be open for inspection after the auction so be diligent and do your inspections and investigations prior to the auction.
Q: What types of properties are sold at auction?
A: Residential 1-4 units ranging from single family detached homes to condo units. These are properties acquired by lenders through the foreclosure or deed in lieu of foreclosure process. The best part is that lenders offer competitive financing options at today's low rates.
Q: What do I need to bring to an auction?
A: If you plan to bid and purchase a property at the auction:
- You are required to place earnest money on the contract at auction in the form of certified funds. The exact amount of earnest money required varies by each home auction. Please refer to the Terms & Conditions of the auction for the amount of required funds.
- Have a valid picture identification for all parties involved in the transaction.
- You should also have the last 2 years of tax returns, last 2 years of W-2’s, and last 30 days of pay stubs to expedite the process.
Q: Are there any back taxes or liens against the property?
A: There are no back taxes or liens against the properties. The sellers provide insurable title to the properties sold at auction. You will receive a standard “Title Policy” as part of your transaction. Please review your purchase agreement for further details.
Q: What is the minimum bid?
A: The audience generally begins the bidding, so there are no set minimum bids. The final sale price for each property is subject to approval by the seller. In some cases, the sellers are present at the auction to make an immediate decision. An auction where the property is being sold with a “reserve” means that the property is being sold subject to seller approval. When a property is being sold “absolute” it will be sold to the highest bidder regardless of price. Any absolute properties will be noted in the brochure. Unless the properties are offered “absolute”, the seller reserves the right to accept, reject or counter the final bid!
Q. What is the 5% Buyers Premium I’ve heard mentioned and what is it used for?
A: The Buyer’s Premium is 5% of the Winning Bid Amount and added to the Winning Bid Amount to arrive at the Total Purchase Price. For example, if the Winning Bid Amount is $200,000, then the Buyer’s Premium is $10,000 ($200,000 x 5% = $10,000). The Total Purchase Price is then calculated as the Winning Bid Amount PLUS the Buyer’s Premium or $200,000 + $10,000 = Total Purchase Price of $210,000.
The 5% Buyer’s Premium is used to help the Auction Company/Broker promote the auction through multiple mass-media outlets such as Television, Radio and Direct Mail, and to help defray the auction expense costs without having to pass on all of those costs to the Seller. It is a standard practice utilized by most major auction companies.
Q: Can I use a broker?
A: Your real estate broker or agent, can represent you at the auction. However, you are not required to have a broker in order to bid at an auction.
Q. What if I change my mind? Can I cancel the transaction after the fact?
A: No! Once the auctioneer has announced “sold,” you have agreed to purchase the property. There is no rescission or “cooling off period”. That is it why it is important for you to conduct all of your due diligence and inspections prior to auction day and bidding on the property. Please review the auction terms and conditions for further information
Q. What if I want to use my own lender?
A: You are free to use your own lender. However, some auctions encourage you to utilize their Designated Lenders due to their experience. Please see the auction terms and conditions and review the purchase agreement so you are fully informed.
Q. What does it mean when the property is listed as “Cash Only"?
A: It means that the buyer must qualify as a cash buyer without using a lender. You must have the down payment (5% for owner occupied, 15% for investment property) on auction day, and be able to verify sufficient cash funds to close in 30 days. They can verify accounts online. Qualifying accounts are bank accounts, CDs, mutual fund and stock accounts, 401K, IRA, and credit lines.
Q. What does it mean when the property is listed as “Cash Only, Renovation Financing May Be Available”?
A: A renovation loan is a loan that enables you to get cash to renovate a property that would not normally qualify for financing. It follows FHA guidelines. Renovation Financing may be available on select properties typically sold as “Cash Only” which meet the loan eligibility requirements as set by the lender.
Q: Can I buy more than one property?
A: Yes. You just need to bring and present a separate cashier’s check for each property you intend to purchase.
Q: Is my deposit refundable if I change my mind after the sale and decide not to buy the property?
A: No. If a buyer does not close for any reason on or before the closing date, the initial deposit may be forfeited.
Q: To whom do I talk to if I don't understand the auction contract?
A: It is very important for auction buyers to be educated and informed regarding the real estate auction process. Make sure all your questions and concerns are answered before you attend an auction and bid. Request a sample contract to review or seek the advice of a legal advisor and have them review the contract prior to the sale.
