Selling or buying a home at auction can be a great option for the savvy investor. For sellers, a property auction is one way to make a quick sale. For buyers, auctions are an alternative method to finding a home or potentially getting a property at a lower cost. Here’s what you need to know about property auctions:
How to buy a home at auction
Like the rest of the real estate industry, a lot of the marketing and bidding for property auctions has moved online. Buyers can search for auction properties on sites like Hubzu.com but before placing a bid, they should read all the terms associated with the auction for that property and do their due diligence. Generally, bidders must register in advance and submit proof of identity. Registering on Hubzu is free. However, some auctions require an upfront deposit in the form of a hold on your credit card or a cashier’s check – if you don’t win the auction the hold is released. This may also be true for in person foreclosure auctions so make sure you read all the information and disclaimers on the property detail page on Hubzu.
Additional financial information like bank statements or proof of available lines of credit may also be requested as further assurance that bidders have the ability to complete the purchase. Once the auction begins, a set time is allowed for the submission of bids. At the end of the bidding period, the seller has the option to select a bidder to proceed with the sale of the property.
Pros to Buying a Home at Auction
● Potential Price Break: Auction homes may be sold at a discount. In particular, properties offered on an absolute basis, without a minimum sales price (also known as a reserve price), may provide the best price opportunities. Auctions also limit price competition to a defined bidding period with a stated end date and time. This reduces the possibility of sellers leaving properties on the market and waiting for better offers or changes in the market that may increase the price of the home. To determine how much you’re willing to pay, you can research the market and look at recent price trends and comps to set the right budget.
● Access to Desirable Properties: Auctions may be used to stimulate interest in new developments which gives bidders an opportunity to purchase a desirable property that could have a high future return on investment. Foreclosure homes are also auctioned off, giving investors the chance to buy a desirable home at a lower price and resell it for a profit.
● Quick Settlement: Buying at auction tends to lead to a fast settlement. Predefined terms have been set by the seller and the auction company, which leaves little room for negotiation after the selected bid is announced. Generally, only a short time frame is permitted between the auction and settlement.
Cons to Buying a Home at Auction
● Cash Financing: Many auctions are cash only sales and are not open to financing options. However, this can work to an investor’s advantage as the competition for auction properties is limited to those who are able to buy a home outright.
● Limited Opportunities for Inspection: Auction homes are often sold “as is.” While you may be able to inspect or preview a home during a pre-auction open house, that isn’t always the case. As a result, if you purchase a home through an auction, a smart investor will also set aside funds for repairs and renovations.
● Title Issues: Sometimes, auction homes have title issues. For distressed properties in particular, auction companies may not guarantee a clear title which would leave the buyer responsible for paying things like outstanding tax liens or unpaid utility invoices. A title agent can run a title search before you bid on a property to give you an idea of potential title issues. Though this cost won’t be refunded if you’re outbid for the home, it can help you decide how much you’re willing to pay.
Before bidding on a property at auction, it’s important to know what you’re getting into. When you’re ready to start your search, head over to Hubzu.
Want to sell a property at auction? Then register for Hubzu’s Signature Seller Auctions for free and give it a try.
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