Real Estate Auctions 101
Are you thinking about getting into the auction market but aren’t quite sure where to start? With years of experience under his belt, Property Wars bidder Steve Simons knows the importance of doing your homework when it comes to real estate. Here are five basic factors that Steve says you should know before jumping into an auction:
Come One, Come All: Auctions are open to the public and are typically held on the courthouse steps.
Payment: Payment requirements will vary from state to state, but generally the property must be paid in full at the time of the auction. Also, bidders are usually required to show proof of payment—typically a cashier’s check or cash—in order to qualify for bidding. Again, this will vary depending on your state. For example, Arizona requires $10,000 cash or a cashier's check deposit up front and then the balance of the winning bid by 5 p.m. the following business day or you forfeit your deposit. California auctions require FULL payment in cash or a cashier's check for the full amount immediately after you win the auction. If you are one cent short the auctioneer gives the property to the second highest bidder.
Home Inspections: Generally, you are not able to perform any inspections on the property, other than a visual inspection from the street or a neighbor's yard. Hidden work can be extensive, so auction investors need to be prepared to suffer losses from time to time.
Extra Baggage: Auction homes are subject to existing liens and encumbrances. Remember that properties aren’t sold at foreclosure auction—loans are. One of the great things about foreclosure auctions is that it wipes out loans that came after the one being taken to auction. This can help clear up excess debt on the property, allowing it be resold at an affordable price point. The flip side is that the buyer is responsible for any loans or liens on the property prior to the loan being taken to auction. For example, delinquent property taxes—which are a lien on the property—are almost always the responsibility of the new owner.
No Title Insurance: One of the things that can help buyers sort out what debt they might get stuck with after buying a property at a trustee sale is a preliminary title report, which would show which existing loans and liens the buyer would be responsible for paying. One important thing to note is that even the best title companies make mistakes, and occasionally miss items that can have a dramatic impact on the amount owed on the property. To reduce or eliminate this risk, title companies offer homeowners and lenders a title insurance policy which agrees to defend against or pay any claims that their preliminary title report failed to show. Unfortunately, such insurance is generally not available for purchase at trustee sales.