BUYING PROPERTY AT AUCTION - AVOID THE PITTFALLS

 

Purchasing property at auction can be a great way to acquire property, but it also can be a expensive nightmare.   The following suggestions make  purchasing property at auction more rewarding and profitable.

 

Always go view property in person.  If possible, inspect the interior of the property.  Bring a licensed contractor or home inspector.  Typically, the property will be open for inspection on the day of auction, usually a half-hour to hour before auction.  Sometimes the auctioneer will make a property available for inspection by appointment. In foreclosure cases, the auction house does not have access to the property prior to the auction, but the property may be opened when auctioneer arrives to hold auction.  Look at the auction advertisement or call auctioneer for specific inspection times.

 

Condition of property.  Property is sold “as is” unless otherwise stated in the terms of the sale.  If not expressly stated in the sales agreement, seller makes no representations nor warranties about the condition of the property.  It is your  responsibility to conduct your due diligence as to the condition of the property.  Prepare an accurate estimate of costs to fix it up.  This amount needs to be taken into consideration when determining how much to bid on the property.

 

Deposit  You should  bring a certified or cashier’s check made payable to yourself for the deposit.  The deposit is forfeited if you do not comply with terms of sale.  Furthermore, you may be responsible for the expenses to resell the property if you do not proceed with the sale. 

 

Set a ceiling on your bid amount.  Do not get caught up in the heat of the moment and spend more than you had planned for a property.  Find out how much comparables are selling for and use this to assist you in determining your ceiling.

 

Read the contract terms.      You, as the purchaser, are responsible for the terms of sale as advertised.  Those terms will also be read by auctioneer  at the time of sale.  Additional terms may be announced on the day of sale.  Many auction contracts make you responsible for the expenses of the property as of the sale date, including taxes, water bills and insurance.  You may also have to pay interest on the amount of the purchase price less the deposit to the date of settlement.  Generally, you, as the buyer, will pay all of the settlement expenses, including transfer tax and recordation tax.  Make sure the property is  sold free and clear of all encumbrances

 

Insurance.  You should obtain a hazard insurance policy on the property as of the day of the sale.

 

Financing.  Make sure you have financing arranged in advanced. Apply for loan immediately.  You do not want to forfeit your deposit because financing is holding up the sale.

 

Possession.  In foreclosure auctions, it is your responsibility to obtain possession of the property if the previous occupants have  not left on their own.

 

Buyer’s Premium:  Some auction houses add a service charge of 10% to the highest bid; therefore, the buyer, not the seller, is paying the auction fee.

 

 

Remember:

 

Caveat Emptor:  Buyer Beware

Also in this section

• Mortgage Calculator
• Title Insurance Calculator