Buying a Home at Auction; Why It Makes No Sense

This morning I was looking into FMLS at a home that a Buyer client wanted to take a look at tomorrow when we are out looking at homes.  What I found was a notice in MLS that this particular home was under auction terms.  To begin with, I find that when a foreclosure is sitting on the market for 6-8 months anyway, it is probably because it is damaged and not easy to get financing to purchase by most buyers. When it gets "turned over" to auction it screams at me that the home has some issues. 

What I found when researching the terms are typical to any auction process you see on homes.  I would again "scream" Buyer beware! Read through these with me.

"TERMS OF SALE:  YOU WILL BE REQUIRED TO PUT $2,500 DOWN WHICH MUST BE IN THE FORM OF A CASHIER’S CHECK MADE PAYABLE TO YOURSELF, OR CASH. THIS IS A CASH SALE AND IS NOT CONTINGENT ON THE BUYER’S ABILITY TO OBTAIN FINANCING. EARNEST MONEY IS NOT CONSIDERED AN “OPTION” PAYMENT. YOU ARE AGREEING TO CLOSE ON THE PROPERTY WHEN YOU SUCCESSFULLY BID ON THE PROPERTY. IF YOU ARE NOT CERTAIN THAT YOU WANT TO PURCHASE THE PROPERTY, DO NOT BID ON IT. IF YOU HAVE NOT INSPECTED THE PROPERTY AND DESIRE TO DO SO BEFORE PURCHASING THE PROPERTY, DO NOT BID ON THE PROPERTY.

THE $2,500 DOWN (IN CERTIFIED FUNDS OR CASH) WILL BE YOUR EARNEST MONEY DEPOSIT FOR THE PROPERTY. IF THE OFFER IS ACCEPTED THIS DEPOSIT WILL NOT BE REFUNDED UNDER ANY CIRCUMSTANCES.

CLOSING: ALL PROPERTIES MUST CLOSE ON OR BEFORE 30-45 DAYS. ALL PROSPECTIVE BIDDERS SHOULD CONSIDER ENGAGING COUNSEL OF THEIR OWN CHOOSING TO EXAMINE THE COMMITMENT FOR TITLE INSURANCE AND ALL MATTERS REFERRED TO THEREIN AS AFFECTING THE STATE OF TITLE OF PROPERTIES ON WHICH THEY INTEND TO BID.

Disclaimers:

(a) The property will be sold by seller to buyer on an “as is, where is, and with all faults” basis. Buyer accepts all faults of the property whether known or unknown, presently existing or that may hereafter arise."

My concerns are that a Buyer would need to pay a real estate attorney to do a title search prior to making a bid on it to make sure there are no title issues. If there are title deficiencies, for example if there were liens or other on the house, a lender would not fund the Buyer's loan and that Buyer could not buy the house. 

This means that if there were any taxes owed, HOA fees, liens from other creditors, etc.. it would be the new Buyer's responsibility for buying the house.  They are saying upfront, you pay for your home inspection prior to making an offer.  It is AS IS so even if you as a Buyer find issues, and you will, they won’t fix anything.  Right there with title work and an inspection you could be out $1000 prior to even making an offer on an auction property! There IS NO contingency for financing. If you as a Buyer had issues with your loan from some unforeseen level dealing with maybe not you, but maybe the house did not meet HUD or FHA loan guidelines for example, then you could not close and risk that the seller could sue you for damages. Your $2500 earnest money required to make an offer would be at risk as well.

Personally I would not even attempt it if it were me unless I had spent the money upfront to do the due diligence and make sure I got my loan “completely approved” prior to even bidding on a house like this including an appraisal. This is another $350-$500 in cost upfront. 

This is a lot of leg work just to protect yourselves and get there safely to where you could make an offer on a house like this without reducing your risk personally, financially, and legally. To me, buy through MLS. You reduce your risks, you may still find foreclosures, but these will transfer clear title, and the bank might actually be talked into fixing issues if major per inspection! Plus you have financing and other contingencies to protect you the home Buyer!

For more information on Dacula neighborhoods feel free to call Hank Bailey at (678) 252-9257, email to hankbailey@prudentialgeorgia.com or follow @PrudentialGARE on twitter.  Hank is the #1 AGENT for Prudential Georgia Realty I-85N in Metro Atlanta in 2012!

Click here to view Dacula neighborhoods and MLS listings in each, and visit my new website www.hankbailey.prudentialgeorgia.com to create an advanced MLS search including foreclosures, short sales, new construction, and by schools! 

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