Las Vegas Area Seller or Transaction Category (#7 in a series): The Auction
Auction is a type of transaction or sale
Every real estate auction is different. To auction a property, generally means that there is a date set for bidding on the price of a property. Each Auction House has it's own terms and conditions that buyers must adhere to if they want to win a bid, or even attend!
Auctions are not just for REO (Foreclosure or Bank Owned Properties! Many people confuse a Trustee's Sale with a regular Auction. Builders have been known to use auctions to liquidate standing inventory. "Regular" or "Normal" sellers may also use the auction method to sell their homes.
Main reason buyers are attracted to an Auction purchase:
PRICE PRICE PRICE!
Pitfalls of an Auction purchase:
- Homes are generally conveyed "as-is". The seller will NOT correct defects or do lender required repairs in most instances. They may ask you to waive your NRS CH 113 Rights.
- Deferred maintenance issues could make house a "money pit"
- Title issues can delay closing
- Banks pick title companies which mean that your costs may be higher than if you got to choose your own title company.
- You may be required to be approved by the preferred auction lender if you are financed.
- Some auctions are "cash only".
- Accessing properties can be difficult. Some auctions have specific viewing dates and times and if you snooze, you lose out on your viewing.
- Very few allow contingencies on the contract.
- Your contract needs to be ratified. This process can take a matter of weeks and even if you bid higher than the starting bid, your contract can still be rejected!
- Contracts can be complex. Some Auctions post the contract on their website or will email it to you for pre-viewing purposes. If you can get a copy of the contract, have a Real Estate Attorney review it prior to the Auction.
- There may be an auction premium that is passed along to the buyer. I have seen these as high as 5% of the sales price!
My most humble opinion about Auctions:
I have seen some of the REO homes that go into auction. They are pretty dumpy and could be unfinanceable and you could have issues with repairs down the road. While most of the problems I have seen homes have (although I am not a home inspector here) is water damage - which could be red flags to mold, the worst auction house I ever saw had all the Cable, Electric and Phone wires pulled through the walls into the attic. My curious buyer decided to go in the attic and that is what they found. This was NOT disclosed on any of the paperwork and the electricity in the home was off so it appeared to be "normal" without the electricity.
Make sure you pay a home inspector to view those homes with you! Problems like water damage, mold, deferred maintenance, defective systems (malicious or otherwise) can cost you MORE in the long run than what you would save at auction!
One of my favorite lenders attends auctions regularly. He reports to me that homes are selling at the same price per square foot as they do in the regular resale market.
So some your due diligence prior to auction should be:
- View the home with a home inspector AND your Realtor, if possible
- Try to get a copy of the certificate of resale or deed restrictions. I have seen some auction houses make you initial or sign that you have already read these right when you sign your contract! Deed restrictions can restrict the way you use your property (such as not being able to rent it out!)
- Get a copy of the contract for attorney review
- Have an appraisal, BPO, CMA so you can have some recent closed comparables. Don't OVERPAY!
- Learn about the terms and conditions of attending, bidding and winning at the auction from the auction company itself. Don't show up at the doors unprepared if you need to bring a large check for certified funds to enter!
Prepare to WAIT for that ratified contract and do not be disappointed if it is rejected - even if you paid WELL ABOVE the starting bid!