Real Estate Auctions. What is it? What Happens If I Win?

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A real estate auction is the norm in this market that is why it is important to understand what a real estate auction is and more importantly understand the risk of the auction.

“You are the winner.” Those words are something that most people love to hear, but what does it mean when you are bidding on a property at a real estate auction? Does it mean that you are responsible for property taxes, federal income taxes, utilities, etc?

Another questions that must be asked by the bidder is what type of real estate auction is it? The type of auction is important because there are different facts that are important depending on the type of auction. For instance, if the auction is a tax sale it is important to know the redemption period that the orginial tax payer has before you can take possession of the property.

If it is a sheriff’s sale, it is important to know if the sheriff sale eliminated the possible utility bills, the property taxes that may still be owed, and/or any other lien that may exist.

In addition, the buyer must know how and when is he or she expected to make payment on the property that he or she won at the auction. Some auctions require twenty five percent the day of the sale and the remaining amount within a week of the sale.

Once the buyer does all the research needed then he or she can purchase the property of his or her choice, but it is important to know that buying at an auction has a great risk because in most cases the property can not be inspected before purchase. In those cases, the buyer would have to rely on drive bys of the home and his or her knowledge of the area.

Still yet, the other type of auction is a bulk sale of foreclosed properties. Buyer beware that often these properties were listed with a real estate company, and the lender or asset company could not sell them due to expense that the lender or asset company could not afford or was willing to pay. The expenses were in some cases not discovered until the property was listed and the listing company did his or her due diligence for city or county violations, property taxes, utilities that may be owned on the property. Those expenses would have to be paid before the title could be conveyed due those expenses being a lien on the property. When it is discovered that those expenses exceed a certain amount the lender or asset company may decide to put the property in a bulk sale.

I have had clients who have purchase properties in a bulk sale who have lost money for the very reason above. Before going to the bulk sale or any auction for that matter get a copy of the list of properties and do your due diligent research on the properties that you are considering purchasing. Your due diligence research may include contacting the utlity companies, tax treasurer’s office and/or title company to find out if there are liens that you need to know about before purchasing the property.

An auction is a great way to acquire real estate, but it is important to understand the risk.

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