A recent article we put together regarding the auction of a home in Georgetown resulted in a reader inquiring about what the auction process is like for a regular homebuyer. So, here is a quick primer on the ins and outs of a home auction.
What is a home auction?
A home auction is another means of dispensing of a property. While many auctions can be the result of financial hardship or foreclosure (or other "involuntary" sales), "voluntary" auctions are those initiated by the owners of the property, making them more analogous to a traditional home sold through a brokerage.
What differentiates the auction process from the traditional homebuying process?
In a voluntary auction, all prospective buyers are agreeing to the terms of a sale, found in the property's purchase agreement, before the bidding commences. The terms of these sales typically include the property being sold as-is and without contingencies for financing, inspection and the like. In a traditional home sale, each prospective buyer submits an offer to the seller and can either include terms in that offer or not; the seller and buyer then agree to terms for an offer to be accepted.
A few other important things about an auction
- Properties may be auctioned with a minimum reserve price attached, where the home cannot sell for any less than a certain amount.
- In many cases, you can inspect the property before you bid.
- The auction itself can take place at the property, online, or some combination of the two.
- Auction bidders are often required to present a cashier's check or complete a wire transfer for the property deposit prior to participating in the auction. Many auction houses also charge a buyer's premium, which would be the equivalent of broker fees.
- You can use financing to purchase a house via auction.
- If a renter lives in the property at the time of the auction, you must still honor their lease.
- You don't need to use an agent to purchase via auction, but you will need a title company to perform the title transfer, and it would be wise to do research or get advice before bidding to make sure you have an idea of what comparable properties are selling for and that you feel comfortable with bidding.
It is wise to look at the particulars of a listing's preliminary agreement and auction terms before deciding to bid. This is even more important when it comes to involuntary auctions triggered by foreclosure or other issues, as these often come with more stipulations and will require a judicial review after the bidding is complete in order to secure the title.
Note: Much of the information provided above pertains to Alex Cooper Auctioneers, which is one of the largest auction houses in the area by volume of transactions. There may be some differences depending on who is administering the auction.
This article originally published at http://dc.urbanturf.com/articles/blog/first-timer-primer-how-to-buy-a-house-at-auction/16457
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