Foreclosure auction frenzy: Worth it?

March 17, 2008 at 4:07 am Leave a comment

Like any other human being looking for a bargain, I was curious for myself and for my clients to find out what a foreclosure real estate auction is all about. So, I recently decided to attend one of Arizona’s largest foreclosure auctions of lender-owned homes.

The auction attracted a standing-room-only crowd in a huge ballroom at a prestigious hotel – about 5,000 frenzied people attended, most of them unfamiliar with the auction process and not represented by a professional Realtor. Still, all were thinking they could get a great bargain.

To bid, the buyer was required to present a cashier’s check of $5,000 up-front. A 5 percent premium of the bid price is paid by the buyer and added to the final bid price. And the successful bidder is required to pay 5 percent deposit to move the sale forward.

Lots of people are hooked on this marketing technique. People were bidding properties up based on historic high values that are outdated based on today’s market. And their adrenaline surges as they attempt to win what they think is the best deal in town.

But can buying at a foreclosure auction really net you the “Deal of the Century”? Let’s compare the differences between this auction and a traditional real estate sale:

Lender-owned Foreclosure Auction

  1. Buyer pays 5 percent premium to buy a house.
  2. Buyer is required to present $5,000 cashier’s check to bid and purchase.
  3. Buyer is required to pay 5 percent down payment on a successful bid.
  4. Seller sets a reserve price on every property. So, Seller will sell the home for the price they want and is under no obligation to sell below the reserve price.
  5. Most Buyers’ interests are not represented or protected by a licensed Realtor
  6. Opportunities to view properties limited to two or three weekends.
  7. Buyer selects from a limited inventory of roughly 400 homes.
  8. Due diligence and all forms of inspections to be done prior to bidding.
  9. Recent comparable sales prices are not available.
  10. A majority of the homes for sale need work and are not turn-key ready. Most failed to sell via the Multiple Listing Service (MLS) because they were competing with homes that are better-priced and in better condition.
  11. Seller does not pay any of the buyer’s closing costs.
  12. A successful bidder signs a 21-page lender designed Purchase agreement that is pro-Seller.
  13. All homes are sold AS-IS; Seller will not make any repairs.
  14. Buying a home is based on a quick decision at a pressure-packed event, not a careful process.

Traditional Real Estate Sale

  1. Buyer pays NO premium to buy a house
  2. Buyer is not required to show any money to make an offer. However, Buyer should be pre-qualified by a lender.
  3. Buyer may qualify for 100-percent financing with no money down. Standard earnest money for a conventional loan is 1 percent of the purchase price
  4. Seller may not always set a firm price on the home
  5. Most buyers receive professional guidance from a licensed Realtor who protects their interests.
  6. Daily access available to view properties of interest
  7. Buyer selects from roughly 56,000 homes in the Phoenix-area market
  8. Buyer is given a 10-day inspection period after an accepted contract with an option to withdraw.
  9. Recent comparable sales are available 24/7
  10. Homes for sale vary in condition, price and financing situation.
  11. Seller may pay for Buyer’s closing costs.
  12. Buyer signs a 14-page Arizona Association of Realtors (AAR) purchase agreement designed to protect both the Buyer and Seller
  13. Seller can agree to make repairs requested by buyer at seller’s cost.
  14. Buying a home is a careful process not an event.

In my opinion, after finding out what the homes sold for and factoring in all the added costs (Buyer’s premium, closing costs, repair costs), a majority of the homes in the auction sold for a fair price – but not at the bargain prices many would think. The Auction requirements seemed pro-Seller to me and only get more stringent as the process continues.

In summary, a traditional real estate transaction with representation by a professional Realtor offers the buyer protection, professional guidance and savings that a foreclosure auction may not

Beware of what the Seller/Lender purchase agreement says. It is designed to protect the lender and the auctioneer – not you as the Buyer.

Buying the biggest investment in your life should be done with care and not in a rush. If you really want a bargain, look for the services of a trusted and knowledgeable Realtor who can spend time finding the best deal for you. You and your Realtor can work out a plan that would offer you the best savings. She or he can simplify the process for you and give you all the information you need to purchase a home suiting your needs at the best deal in town.

Entry filed under: Arizona Real Estate, Chandler Real Estate, Foreclosures & Short Sales, Phoenix Real Estate, Real Estate Deals, Uncategorized. Tags: , , , , , , , , .

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