I am hearing from many people that they are itching to buy a house via auction. One friend told me that they were going to buy a house in Oakland this year for $5000. He said that he did not care about the condition of the house or the neighborhood. I understand, buying a piece of property for 5 grand is enticing. If houses were available to purchase for $5000, I would buy a West Oakland Victorian and renovate it back to its turn of the century glory. Here are a few things you should know about buying property via auction.
There is no Department of Real Estate regulations of auctions, nor separate regulations of auctioneers who conduct real estate auctions. If the auctioneer is selling real property the auctioneer must be a licensed broker or work with a Department of Real Estate licensed broker.
To buy a home via auction you MUST have adequate financing lined up before bidding as the purchase agreement usually does not contain a financing contingency. (a period a time in which you can back out of the contract if you can not cement financing.)
When buying a home via auction you will not be provided with any reports or disclosures regarding the property condition. For example, the foundation could fail and the roof could be long overdue for replacement. Unfortunately an inspection contingency period will not be a part of the part of the purchase contract. A time period in which you can back out of the deal if you are not satisfied with condition of the house.
Typically bidders who purchase homes via auction are professional investors, they are not folks looking to buy a home to owner occupy. They are investors who know all of the potential pitfalls regarding the process When you are bidding on a foreclosure via auction you could be bidding on just the junior or second mortgage that has been foreclosed. For example the starting bid on a home is $40,000. You bid on this property and win the home for the $40,000 amount. However, unbeknown to you, there could be a senior loan or mortgage attached to this property for an additional $300,000, where you are now responsible for paying it off in full in order to actually own the home. How horrifying would that be to think you are purchasing a fixer upper home for $40,000 and realize you are now on the hook for $340,000!
I wouldlike to hear from you! Do you have a positive auction experience in the Bay Area? Let me know.