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Would you buy a home you’ve never even seen? People do.

September 23, 2009

On Monday of this week I worked as a contract signer at an REDC real estate auction down in Fort Myers, Florida. Real estate auctions are such a wonderful opportunity for investors to pick up really low-priced properties to add to their portfolios. Heck, they’re great for just about any buyer with a bit of cash in their pocket. Anyone with the right market knowledge and experience (or an experienced Realtor representing them) should seriously consider checking out the next auction. Email me at chris@callchristoday.com if you have questions or need some advice on how to purchase through real estate auctions. They are fun, fast and potentially financially rewarding.

But on to the purpose of this post. It never fails to amaze and amuse me how many auction bidders bid on properties they have never even seen in person. I can’t picture a more foolish thing to do, but it happens every auction. These buyers are expected to have done their due diligence and visited each and every home upon which they are considering bidding. By the time of the auction they should know the condition and history of the property and neighborhood. But many people just don’t do their homework and they arrive at the auction virtually blind.

The way most real estate auctions work is as follows. Buyers are supposed to read the sales contract online before ever walking in the door.  Once at the auction buyers aren’t expected to do more than skim the contract to verify it is the same contract they read previously on the Internet. There just isn’t time. Auctions are fast-paced and bidders are expected to be a bit more educated than the average home buyer. But this isn’t always the case.

In addition to reading and understanding the contracts prior to the auction the bidders are expected to have visited each and every property. Usually the listing agents will have set days and times where they open the auction properties up for potential bidders. While it is true that a lot of the listing agents don’t make seeing the house very convenient it still makes little financial sense to place a bid on something you haven’t seen. Think of all of the “surprises” a buyer could face in such a situation!

And here is the kicker. The contract clearly states that the buyer is NOT allowed access to the property between the signing date and closing.  You would be shocked how many buyers sit down with me at the auction mumbling under their breath their intentions of doing a home inspection right after the auction and how the property better be in good condition or they’re backing out of the deal. There is NO access to the property for home inspections once the contract is signed. You sign…you buy. The contract doesn’t include verbiage about a home inspection contingency.

I’m done venting. It is just hard for me to sit there and do my job without wanting to help these people. When I act in the capacity of a Realtor my job, both professionally and ethically, is to help my clients navigate their way through the complexities of buying and selling real estate. But when I’m a contract signer at a real estate auction my job is to get signatures and not offer suggestions or advice. And I do this….as much as it hurts.

Comments

3 Responses to “Would you buy a home you’ve never even seen? People do.”

  1. Bradley on September 28th, 2009 9:04 pm

    Amazing. I’m sure these people often regret their failure to investigate.

  2. Strakmore3 on September 29th, 2009 10:06 pm

    How much money is required to buy at one of these auctions?

  3. Chris O'Connor on September 29th, 2009 10:21 pm

    REDC auctions used to require showing a $5,000 cashier’s check just to get in the door, but the market is changing and this door amount has been dropped to $2,500. I assume this change is an effort to attract more buyers/bidders.

    But the $2,500 is only to get in the door. You also have to pay the deposit payment on the home right then and there. So assume the winning bid is $100,000. The first cost that is added on is a 5% buyer’s premium, which goes straight to REDC to cover their expense of running the auction. So now the winning bid is $100,000 + $5,000 or a total of $105,000.

    Your deposit payment is 5% of the $105,000 if this is your first property being bought at the auction on any one particular day. If it is your second home you have to give a larger deposit. I believe it is 10 – 15%, but I’d have to check on this.

    So your deposit payment would be $105,000 x 5% = $5,250. When you sit down at the contract signing table you’d hand the notary handling the signing your check for $2,500 (the cashier’s check you used to get into the auction) and then write a personal check for the balance due, which in this case would be $2,750. This $2,750 can be a personal check.

    If the winning bid is not “subject to lender approval” you’ll be closing in 30 days from the date of the auction. No, you cannot extend the closing date and even thinking about doing so can be a breach of contract and you could lose your deposit and home.

    Most homes have a “reserve” similar to how a reserve on eBay works. If your winning bid is lower than the lenders reserve (their stated bottom line) your contract will be stamped as “Subject To,” and the lender must make a decision on whether or not to accept your bid.

    I hope this helps. I’m going to make this response a post on my blog as it might help quite a few people.

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