Let’s talk about auctions. Anybody want to go to one? Just for fun? Here are a few simple steps:
- Research the property being auctioned. If it is a single property that went into foreclosure, get the specifics about the property: its size, its amenities, how much is owed against it, and what the opening bid is. Check with the county recorder or local title company for a list of properties currently in foreclosure. For a specific property have a title search done. This can cost a few hundred dollars, but will save you A LOT of money and headaches down the road if you find out that the property does not have a free and clear title with no liens against it.
- Compare the sales prices of similar properties in the area so you have a good idea of what the subject property is worth. Properties within 3 miles of the subject property are the most reliable predictors of value. Compare sales of properties with the same number of bedrooms, bathrooms, and square footage if possible. Add or subtract for differences and amenities such as pools, decks and fireplaces.
- Get financing. Typically, homes at auction require a deposit for an accepted bid – anywhere from a few thousand dollars to 10% of the price (I know, these two things may be the same, depending…), and the remainder of the financing must be in place within a specified period of time (often 30 days). You need to check with the auction house on their specific rules. They may require funds in the form of a money order, or may be ok with a personal check or even cash. If you don’t close the deal, they may keep the money. In terms of getting the financing within 30 days, it would help if you have already started that process with a lender so that you don’t end up forfeiting your deposit because you weren’t able to get the loan.
- Know your price limit. Auctions work on creating an atmosphere of agitation and excitedness. The more frenzied the auctioneers can get a crowd, the more likely the prices will be bid up. Don’t get swept up in the moment. Know how much you are willing to spend and stick to it. Some auction houses will specify a reserve amount that must be met before they sell the property, others not. Kind of like Ebay. For instance, if it’s a foreclosure the first bid is typically made for the foreclosing lender by whoever is representing that company. The bid will generally be for the amount that’s owed, although there doesn’t have to be any actual exchange of money involved. If no one else puts in a higher bid, property ownership reverts to the lender. In most cases, no one shows up for the foreclosure sale except the proxies for the lender and whoever may be running the auction. That’s especially true if there’s no room for profit between what’s owed and the market value of a property.
- How much will it REALLY cost to buy a property at a real estate auction? A premium may be added to the bid price to determine the contract sales price. If you are the high bidder, you may pay the high bid price plus a 10% buyer’s premium. Be sure you know the auction house rules.
- Be prepared to walk away. Don’t feel as if you have to buy something just because you are ready. If the deal isn’t right for you, it’s not a deal. If you bid, you must follow through with the purchase. There’s no turning back once you’ve committed to buy a foreclosure property at an auction. So do your homework. I can help with that.
There aren’t too many homes in Arlington Virginia being auctioned off, but just venture a little farther outside of Arlington County and presto!
Another long list of FAQs is posted here. Well worth it to review them before heading off to your first auction experience.
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Thinking about buying or selling a home in Arlington, Virginia? I’m here to help. Contact Christine Rich of Long and Foster for all of your real estate needs in Arlington, Falls Church, Alexandria, and McLean, Virginia.
