Want to Purchase Property at a Real Estate Auction? Read This First
Since the end of the booming housing market in 2006, a variety of factors have contributed to the decline of real estate values. Jobless rates have climbed and the number of foreclosures the US has seen has risen as well. Over one million homes in the last year alone had gone through the final stage of foreclosure. Seeing the glass as half full may be difficult, but there is a positive side to this.
Owners will get out from under their mortgages, and though auction, lenders will recoup some of their investment. It also presents an opportunity for buyers. A real estate auction can be a good way to purchase a home, land, or commercial property at low prices. Before you jump into a bidding war, though, make sure to learn about some common terms that you will be hearing a lot:
Foreclosure: It is good to start at the beginning. A foreclosure occurs when the mortgage holder can no longer pay the lender. The lender takes possession of the house or property in order to make up some of that loss.
REO Auction: Property that has reverted back to the lender is referred to as real estate owned. The mortgage company or bank will hold an auction in order to liquidate their assets and recoup some of the loss they took in the transaction.
Minimum Bid: This is the price at which bidding begins. You cannot place a bid that is below this amount. This is set by the seller.
Reserve: This is the lowest amount that the seller will accept. It is different than the minimum bid. Sellers do not disclose their reserve; when it has been met, the auctioneer will announce it. If you win an auction at which the reserve was not met, you must pay the difference in order to complete the sale. For instance, if the reserve was set at $100,000, and you won the auction at $80,000, you have to pay the additional $20,000 if you want to purchase the property. You are not legally obligated to buy in this case.
Deposit: Whether you are attending a live or virtual auction, you are typically required to place a deposit before bidding. A deposit for a commercial property is usually $250, and one for residential property is $100. This is to show good faith and a willingness to pay if you win an auction. It is also used to cover the penalty if you do not complete a transaction after you have placed the high bid. At live auctions, a certified check written to yourself is used, and online, a temporary hold is placed on your credit card account for the deposit amount.
Bidder Package: This is a package of materials that relates to the property being sold. It is sometimes called a due diligence package and should relate the condition of the property and other relevant details.
Market Value: This is what the house would sell for in an open market. Bidders want to pay less than the market value for any property.
Subject to Seller Confirmation: You may hear the auctioneer say this when the auction closes. Instead of hearing “Sold,” it is like “Sold Maybe.” If the reserve has not been met, the seller can refuse to sell to the high bidder. The bidder is under no obligation to buy when this happens. So even if you are the high bidder, you may still have some work to do before you hear, “Sold.”
Auctions can be a great way to purchase property and homes; the key is to be as familiar with the process as possible so you are not intimidated by expert investors. You also do not get caught up in the excitement of bidding and overbid. Knowledge is your best ally in finding the right property at the right price.
Homes for auction can be a great deal