About to put an auction bid in, What am I missing?

Question

Good Morning,

I have found an online auction that I will be putting a bid on and am looking for some guidance.

The home is in an area i am very familiar with so I am confident in the location. The pictures posted look  make it look turn key and is being auctioned because of a bankruptcy. From what I can find the owner has passed away. The auction ends tomorrow evening so I don't have too much time. (May 31st)

Facts:

• The Auction is starting at 100k with 50k bid increments
• Comparable sales in the area between a low of $154 to a high of $178 per square foot.  
• This home it looks like it could get between $257k and $296k. 
• I have about 150k I could come up with another 50-75k (getting creative)
• If I don't want risk putting down the cash may finance some (above 100k)

Questions:

What would concern you about this auction?

What would you do first to ensure your concerns were put at ease before bidding?

What flexibility do i have in making a bid but not being locked in based on something that could go wrong (legally or otherwise)?

What should i be doing looking for before making a bid or committing to purchase and sale?

What other advice do folks have

Thank you very much for your help

Matt Lefebvre · Answer

@Jim Mitchell the vast majority of auction.com properties have at least some work that needs to be done.  You are not going to find a turnkey house on an auction site... otherwise the owners probably could have sold it and avoided foreclosure in the first place.  A house built in 1913 is going to have work that needs to be done.  It might be things you can't see (like needing to update the plumbing or electrical), or rooms they didn't show you in the pictures.

Not having access to the property, while sometimes is the case with auction properties, is not something I'd recommend pursuing.  Seasoned flippers or investors tend to put bids on properties like this knowing that 1 or 2 will lose money for every 10 deals they do.  Buying sight unseen is RISKY.  There's nothing wrong with risk if you have the cash reserves to support a few losses, but when you're just starting out, I'd strongly recommend finding a property with less risk.

If you put a bid in on this property and go under agreement, from the sound of it, you have no contingencies that let you escape.  This is a "cash-only" deal, meaning there's no financing contingency.  This also is being sold "as-is", meaning there's no inspection contingency.  Needless to say, as soon as you sign this agreement, you are locked in and have to buy the property or forfeit your 5% deposit.

Once again, there is a lot of risk involved in purchasing a house sight unseen... especially an older house that you're assuming has minimal repairs to be done.  I'd encourage you to find a deal where you have physical access to the property, or are working with someone who has a lot more experience dealing with buying houses sight unseen.

Rob Singles · Answer

Try to find a local investor mentor to go through the deal with you. An occupied property comes with additional challenges. Are the occupants a tenant, owner, squatters? Each may have different rights and each may have a different legal remedy required to remove them - this could be a lengthy process depending on your states laws.

Based on it being occupied, financing is likely out in the traditional sense. Hard money may be available, which could actually lead you to a good mentor and put a second set of eyes on the deal.

I'm not trying to be discouraging. I do believe the best way to learn is to jump in and do it; but you must go in fully informed. You are doing the right thing by reading the information here and asking questions. Best of luck.

Rob Singles · Answer

Have you or someone you trust physically inspected the house? Going on pictures alone is a risky way of doing business. I recently was in an auction house that looked real good, no holes in the wall, fixtures not missing. On physical inspection all of the electrical panel had been stolen, all the wires cut out of the attic, water heater, and air conditioner as well.

Many online auctions will not permit financing and require proof of funds quickly after auction end. Also, many of the online auctions will state in their terms they can bid against you on behalf of the seller up to the reserve price. In essence, you could be bidding against yourself.

Just make sure you do your due diligence and completely understand what you are getting into. Do not let the deadline imposed push you into a deal not knowing the terms.

Jim Mitchell · Answer

The home was purchased in 2010 and loan for 379k was taken out on it. Not sure if that matters when considering some of the risks.  To your point won't matter if the current owner vandalizes it

Jim Mitchell · Answer

Thank you @Rob Singles. I have not inspected and it looks like it is currently owner occupied and definitely do not want to jump in based on the deadline. I do want to be conservative with my bid and leave enough for some profit if something is off the charts wrong. It is also a home built in 1913 and i know the town will require it to be brought up to code. Based on the pics there are GFCI outlets in the kitchen so it looks like it has already been brought up to code with electrical.

I am going to see if I can get in tomorrow to see it but everything i have found so far does not allow me in .

Here are the terms :

Transaction Details:

• Buyer will not be charged a Buyer's Premium for this property
• If you are the Winning Bidder, an Earnest Money Deposit of 5% of the total purchase price or $2,500 (whichever is greater) is required.
• Buyer may receive a Special Warranty Deed or equivalent if Buyer is able to purchase title insurance without delaying the closing (title fees typically cost between $500 and $1500 and are based on the purchase price of the property). If buyer does not purchase title insurance, buyer will receive a Quitclaim Deed or equivalent, with no express or implied warranties of title.
• Buyer is responsible for all escrow fees typically ranging from $850 to $1,375.
• This property is reported to be occupied and buyer is responsible for obtaining possession.
• Property to be free and clear of all delinquent HOA/COA fees at closing.
• Property is being offered as is, where is.
• This property is being offered exclusively through Auction.com before it will be available to the broader market. Please be aware that in rare instances, issues arise that may require the seller to cancel the transaction due to this early availability.
• Until the seller's reserve price is met, Auction.com may counter bid on behalf of the seller. Counter bidding gives buyers and sellers more flexibility to find a mutually agreeable price. Counter bids do not occur after the seller's reserve price is met.

About to put an auction bid in, What am I missing?

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