Residential Home Auctions: The Devil is in the Details!
Something you see more and more of lately are home auctions. Banks are frequently turning to this approach to unload their foreclosed properties because they have so many of them to get off the books. Auctions serve an important function as a means to rapidly sell properties in a saturated market like Las Vegas. That being said, if this is the route you want to pursue, you need to proceed with caution. Bring a Realtor with you, it doesn’t cost you anything and they can help you avoid some costly mistakes.
When you are considering placing a bid on a property, make sure you have an accurate estimate of what the home is worth. A Realtor can provide this to you in the form of a Comparative Market Analysis (better know as a comp). Comps show what similar houses in the neighborhood have sold for in recent months. Make sure you are comparing apples to apples or fixers to fixers as the case may be.
I usually advise my Buyers to get an inspection each and every time they buy a resale property. In an auctioned property this may not always be feasible. Unless you can accurately do your own home inspections (and for our example lets assume you can’t), it can be a costly proposition. How many home inspections are you willing to pay for BEFORE you even know your bid is accepted. Why would you place a bid without an adequate inspection? Here lies the biggest problem in buying homes at auction! Some auction houses won’t even allow you to have a property inspected before you place a bid on a property!
The Property is being sold AS-IS with NO WARRANTIES expressed or implied. This is a universal truth in the auction world. The auction house will go into great detail in the fine print to explain that they don’t warranty anything about the property. Many won’t even guarantee that the title will be conveyed in marketable condition (important when you go to sell it). If you have a concern, check it out before you bid.
Last but not least, watch out for the BUYERS PREMIUM. Most auction companies have a clause stating that the winning bid will have an automatic 5% (or more) buyers premium added. Make sure you adjust you bid accordingly to take into account this automatic BUYERS PREMIUM.
Most auctions are considered cash sales. Make 100% sure you have your money in order before you put in an offer. If you don’t you could lose your Earnest Money Deposit (EMD). Expected amount of time given to close a transaction varies from 45 days to immediately after the auction. Read the fine print BEFORE you place that bid! Some auction houses will pull your credit prior to or after accepting any bid from you. If you have ever written a bad check for an EMD they will probably deny your bid and ask you to leave. This is a business, they are dead serious about protecting themselves and THEIR clients.
In closing, bring a Realtor and read every line of the terms/conditions/contract. Good deals can be found at auctions if you do your homework and come prepared.
My name is Greg Hoffman. I have lived in Las Vegas since 1990 and I have been a realtor here since 1999.
Great article, Greg. Auctions do provide some excellent buying opportunities; however, as you mentioned, carry significantly more risk. Truth be told, these homes have been readily available on the market and have simply not sold. The reason being, they are in general, less desirable properties. The best bank-owned homes in Las Vegas that are priced properly don’t last long and are sold.
Good point thanks for the feedback