There’s an auction taking place next week, with 150 foreclosed homes across the Valley up for sale. The initial bid prices are low – in one case, in Wittman, it’s less than 50% of the current list price on the MLS – which means interest is high.
But there are some decided differences between purchasing a home at auction and purchasing a bank-owned home in general, the kind that can make a small gamble into an out-and-out crap-shoot:
On auction properties, inspections were to be completed no later than today. When you sign the paperwork to register at the auction, you’re signing a document that says you’ve inspected the property and accept it in its current condition. Not only is it an as-is sale, you don’t have the right to an inspection after it’s purchased. As soon as the gavel drops, it’s yours.
With a bank-owned home, you have a 10-day window after your offer accepted by the bank to conduct all of your inspections. If you don’t like what you’re seeing – if there are major structural flaws, for example – you can cancel the contract and walk away.
Either method will cost you $300 – $400 dollars but here’s the real rub. On the auction, you’re spending that money to inspect a home you may not purchase. On the REO home, you’re not paying the money until you know you’re the only bidder for the house.
Pricing & Emotions
On a bank-owned home, you have a list price to serve as a basis for an offer. You also have the time to run the numbers on comparable homes and see what the home’s worth.
On an auction, you know you’re starting below the normal list price. You may or may not have the comps in front of you. And the biggest variable of all is emotion. Some people are very good at walking away if the bidding goes too high. Others get so focused on the “win” that they lose sight of what they’re paying.
And sometimes it goes beyond the comps for one given area. Are you paying the same amount for a bank-owned home at auction than you could have spent on a brand new spec home being offered by a builder? If so, why?
Buy it Now? I don’t think so.
You know that option on eBay, Buy it Now? It doesn’t exist on an auction property, at least not at the initial bid price or even close. If it’s still listed in the MLS, you’re going to have to offer closer to the list price there and the auction bid price which defeats the purpose of participating in the auction.
Here’s the one advantage to the auction – there’s instant gratification if you get the house. You don’t have to wait a week or so to hear back from the bank. And you don’t have to wonder if additional offers are coming in on the same house you want while you’re waiting for an answer on your offer.
Auctions may work for some but it’s not necessarily a route I’d recommend. There is a possibility for a deal but the risk involved, from the initial $300-$400 outlay for just the home inspection (and an additional $60 for termites, plus whatever specialty inspections you may want) seems too high a price to pay to play real-live eBay.
[tags]Phoenix real estate, real estate auctions[/tags]