Is it better to buy a bank owned home at auction or before it hits auction?
We often hear this question. “Is it better to buy a bank owned home at auction or from the bank before it goes to auction?”
The answer to this question can vary house to house, but often it can be better to buy the home before it goes to auction for a few reasons.
1) A buyer putting in an offer prior to an auction is one buyer and may get a few more benefits than the bank waiting for several people to make an offer (bid) at the auction. When you make an offer before the foreclosed house hits auction you have the chance to work with the bank on minor details when when you buy the same house at auction the deal is set with no wiggle room.
2) The auction may have more conditions such as reserves, premiums in addition to the bid price for the house which will increase the actual price you pay.
3) You do not always know if a bid will be accepted at an auction because of the reserve price a bank may have on a home. You could be the high bidder and a house and you will often hear “Sold, pending approval.” This means the bank has the right to reject your bid. The only time you know for sure you will get the home is when you hear the house is being sold “absolute,” which means the high bidder will receive the home.
4) You must have a larger cash deposit at an auction.
5) You must have financing together and in place before you go to the auction. If you end up not qualifying you may lose that larger deposit the auction requires. An auction will often require a $5,000 or 5% deposit put down on the home at the time of the bid. If your financing ends up falling through then you lose your deposit.
6) Many buyers get into bidding wars at the auction. They don’t mean to, but that is exactly what the auction house is paid to do and they are very good at what they do. You need to go into the auction with a set price on what you are willing to pay, and do not exceed that amount. With the excitement of a bidding war it is very tempting to go higher and this is where many make their biggest mistake. We have seen many people end up going to an auction, get caught up in the moment and end up paying more for the home than they could have purchased the house for before auction. On top of that, they end up paying a buyer premium of about 5% which is typical at auctions.
7) Buying a home at auction required a lot more homework and more risk than buying the same property before auction. If you purchase a foreclosure before the auction you still have your ten day period to get a home inspection done. If the home has a serious structural flaw you have the opportunity to back out of the deal. If you purchased that same home at auction you may not know about the flaw until it is to late.
Deals can be had at auctions, but if you are considering buying a home at auction make sure you do your homework before. Tour the home at the open house, which is usually held 1-3 weeks before auction date, know the neighborhood, look for repairs that will be needed, know what the home is selling for and know what the fair market value of the home is. Then with all your research done, you can then attend the auction and hope for a great deal.
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