Learn the rules of estate auctions.
Foreclosures and estate auctions can be enticing investment opportunities for both everyday buyers and serious real estate investors. Stories of great deals travel quickly. However, many consumers are also suspicious of estate auctions because of the "as is, where is" nature of most sales and unfamiliarity with the process.
Real Estate Auction Bids
Common real estate auction rules maintain that when a county sheriff or designee initiates an auction on a foreclosed property, the note holder may set the starting bid as the remaining balance on the mortgage loan. In a weak real estate market, auction rules permit the foreclosing party to set the starting bid lower if the property securing the loan is worth less than the remaining principal of the loan. If a foreclosed house fails to attract acceptable bids at a real estate auction, it may remain the property of the owner of the mortgage.
"As Is, Where Is"
There are typically three main conditions in any real estate sale at an estate auction. The first is the "as is, where is" nature of the sale. The buyer bids for the property in its current condition, regardless of various damages or hazards. This is both a risk and an opportunity for buyers. Damages can reduce the price of a property and the appeal to other bidders, but may be able to be repaired by the winning bidder at a later time for a relatively low cost.
No Contingencies
Most real estate sales at estate auctions have no financing contingencies. This means that bidders must have all the funding lined up for their purchase and cannot rely on mortgage contingencies to close the deal. This requirement makes it essential that bidders are able to pay for their purchase in full. If buyers initiate the payment process and later discover that their funding is not sufficient, they are typically unable to obtain refunds for payments already made.
No-nonsense Closings
Another third condition is the no-nonsense, 30-day close. Most auction sales must be closed within 30 days. If buyers cannot provide the funds by the end of the deadline, they typically lose their deposits. Many contracts also stipulate that bidders are eligible for additional damages. Typically, only the seller has the right to extend the deadline. This is not all bad, however. Quick closings are often a big attraction for investors, as they can avoid the lengthy negotiation and inspection stage.
