This coming Saturday, another large-scale auction of foreclosed homes in the Phoenix real estate market is going to take place. Pricing in the Arizona Regional MLS has been far more aggressive this time when compared to past efforts, with list prices as low as $500.
Yet purchasing a home through the auction remains a gamble for the same reasons:
- The reserve price. Unless the reserve price is met, the bank’s not going to sell the house. So please, please, please don’t uncork the champagne to celebrate your new home until after you make sure the bank signs off on the paperwork.
- Condition. Unless you’ve already inspected the homes, you’re out of luck. Open houses on these homes were the last two weekends and it was during these homes that you had to complete your own due diligence.
- Artificial demand. The auction is counting on the same competitive spirit that causes people to increase their bid multiple times in the closing moments of an ebay auction in hopes of driving up the price of the home as high as possible.
It’s absolutely conceivable that a “deal” could be found during one of these auctions. But the question is whether the possibility of a deal is worth the significant risks involved – far more significant than when purchasing a regular bank owned home.
On a bank owned home, you generally will have a 10-day inspection period during which you can complete the inspections on the property. If you don’t like what you see in your inspector’s report, you can cancel the contract and regain your earnest deposit. Best of all, you’re not paying for the services of an inspector until you’re under contract and you’re the sole person in line to purchase. With an auction, bring an inspector and you’re out $375 or so when someone else buys the house.
On a bank owned home, there’s some sense of price certainty. Yes, the bank probably had a bottom-line number in mind similar to the reserve. But if nothing else, you can look at the list price and know the highest possible “reserve” the bank has in mind. Not so with an auction, where you’re bidding without knowing what the bank really will take.
Lastly, while multiple offers aren’t uncommon on bank owned homes, you’re not going to see the competitive bidding as you would in an auction. Any time you can reduce the play of emotions while purchasing real estate, it’s for the better.
Just for the fun of it, I’ve downloaded data on the homes in the auction and will post the findings once we see the results coming into the MLS – what sold, what didn’t, what the final price was compared to the previous price, etc.
Should make for interesting reading.[tags]Phoenix real estate, bank owned homes, real estate auction[/tags]