Information on Real Estate Auctions

Real estate auctions allow homebuyers to bid on property in an open forum, with the property ultimately being sold to the highest bidder. This method of sale has become increasingly popular, especially when used to purchase bank-owned properties across the nation. Real estate auctions can be very chaotic for those who have never participated.

Preapproval

Prior to being allowed to bid, a buyer must supply the real estate auction staff with a preapproval letter from an approved lender. If financing is not required, the buyer must, instead, provide proof of funds for to register to bid on properties up for auction. In addition to the preapproval, some real estate auctions require a deposit to begin bidding. This can range from $500 to $5,000 depending on the values of properties up for auction. If a bidder wins a property, that deposit is used toward his closing costs or prepaid items. In some auctions this is nonrefundable, to help offset the costs to the real estate auction firm and provide compensation for time and efforts.

Property Preview

After registering to bid, approved bidders will be allowed to preview the property that they are bidding on. This process is usually only open for a few hours, so it is crucial that bidders set aside time to preview the properties they are interested in and have enough time to return to the auction. Many real estate auction companies will provide online property previews, virtual tours and photos. These are normally available online to assist potential bidders as they decide which properties are of the most interest to them.

Bidding

The opening bid for each property will be run by a licensed auctioneer. Most real estate auction formats will be run as silent auctions. The entire auction process for each property will begin and end in a matter of moments. Upon winning a property, the bidder is then required to meet with the auction staff to complete financing or payment for the property, as well as any other required paperwork.

Paperwork Requirements

In addition to financing documentation and lender approval, winning bidders must also complete the state-regulated real estate forms for their transaction. This will include contract documents, earnest money documents, and home inspection or warranty documentation. This process can take several hours upon closing of the auction.

Closing

Upon winning an auction, it can take as little as seven days to close on a property, if paying cash, or as long as 60 days to close on a property, if financing. For bank-owned properties, most lenders will require going through a preapproval process with their mortgage company to ensure that the winning bidder is financially qualified. Buyers are not obligated to use that lender; however, they should expect to have a requirement to meet with the lender prior to closing on the property.

Misconceptions

While many homebuyers believe that they are getting a great value on a home by purchasing it at auction, this is not always the case. Many homebuyers find after closing on a property that it is rife with large issues and major defects that were not known at time of bidding, which can amount to thousands of dollars in repair costs. It is important to do extensive research on a property prior to bidding on it, to including previewing it in person and having it inspected prior to bidding.

Benefits

For homeowners who have done research prior to bidding and winning real estate property, homes sold at auction are often obtained for wholesale pricing. This allows homeowners and investors the potential to build equity quickly and obtain a favorable return on investment when renting or selling the property in the future.

References

• Auction Information