A real estate auction is most commonly used after a property has been foreclosed on and a bank owns it. An auctioneer is used to accelerate the purchase process and, as the bidding progresses, a realistic fair market value for the home prevails. This can be an intimidating way for a beginner to buy a home, so it might be helpful to ask questions prior to bidding on a home in auction.
While there is the occasional auction held for a privately owned home, most homes in auction are owned by mortgage lender who have foreclosed on properties and wish to recoup some of the money they have put into them. Banks are not in the business of owning homes, and don't want these properties on their books, so they sell them through auctions.
You absolutely should inspect a property prior to making a bid on it. Take a home inspector or contractor with you for the best possible sense of how much it is going to cost to make the home fully habitable. In addition, make sure you read and review property information, including all disclosure documents that pertain to the home. The home will not be open for inspection after the auction, so do your due diligence prior to the first bid.
If you plan on bidding on a property you must have a cashier's check made out to yourself in the amount that has been specified by the auction company. Using a personal check, you will also be required to pay a 5 percent earnest deposit on auction day, as well as any other sales fees requested by the auction company. You can contact it prior to the day of the sale to learn how much the specific fees amount to. Make sure you have a valid photo identification with you so that the auction company can be sure of whom they are working with.
One of the fees collected from the winning bidder is called a buyer's premium. This money is used to help defray the auction expense costs so that they're not passed on the seller. The fee amount varies from company to company, but is normally around 5 percent of the winning bid.
While you can arrange for your own financing, you will need to provide the auction company with a written unconditional lending commitment from your lender on the day of the auction.
A "Cash Only" auction is one in which a buyer must be able to pay for the property without the assistance of a mortgage lender. The auction company will verify assets such as bank accounts, 401Ks, IRAs, CDs, mutual funds and stock accounts to be sure that you have access to enough cash to cover the purchase.
Closing generally occurs within 30 days of the auction. You will receive title upon payment of the purchase price and closing costs.
You cannot cancel the transaction. Once you have agreed to purchase the property, it is your's. There is no cooling off period or opportunity for you to reconsider. This fact makes it especially important that you conduct your due diligence prior to the auction so that you fully understand what you are getting into.
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