For those of you happily unaware of the fun-filled world of buying houses at auction, here's a brief tutorial:
Step One: Check your auction sites! Two that I check frequently are www.realtybid.com and www.auction.com. Both are easy to navigate and pretty informative. Once you find a house that interests you, check all the available information on it. You probably won't get much, other than a few photos, an aerial view of the property and a scary warning that the home does not qualify for conventional financing.
Step Two: If that hasn't totally scared the crap out of you, look at the bidding history. When does the auction start, or if it has already started, has anyone bid on the property? Some hot properties have lots of bidders right away; others may only have one or two people who bid at the very last minute. If no one is bidding and there are several days left on the auction, you can sit tight and just watch to see what happens. Or, you can enter a minimum bid as a fishing expedition to see if anyone outbids you. That lets you know if someone is actively watching the same property.
Step Three: Go get dirty. Most auctions have open houses and the dates are listed on the auction site. GO CHECK OUT THE PROPERTY IN PERSON. I can't stress this enough! Go poke around, look in and under everything and make an educated decision about the highest bid you are willing to enter. Take lots of pictures, too! Then go home and load them on your computer and look at them over and over. Check out any visible damage and ALWAYS assume there is more that is not visible! Whether you are able to personally see the property or not, it's a good idea to decide how much you can afford to put into the property and then subtract the cost of the obvious necessary repairs. Then, subtract closing costs and internet auction fees, etc. THEN you have an idea of your maximum bid.
Step Four: Bid, Baby, Bid! Our strategy was to wait until 5 minutes before the auction ended before we even posted our initial bid. No one bid against us and we were the high bidder. Success! Well, not exactly. Because the seller's reserve wasn't met, the house went into post-auction bidding, which can last for another week. At any time during that period, the seller can receive a better offer and go with it or simply reject your offer and walk away without selling. In the end, we went up a little on our price and the seller came down a little on his reserve and we came to an agreement.
Step Five: The Legal Crap. Once you have won the auction, in most cases you'll be sent a Purchase Agreement, which is not the same as a contract. The purchase agreement details what you are agreeing to pay for the property and your understanding of its condition and that it is being sold "as is/where is." You'll sign that and if the seller likes the numbers, you will THEN receive a contract to sign.
Step Six: Now What?! Once you have a signed contract, you'll complete the closing process and possibly take possession at closing (most auctioned homes are vacant, so this is common). Have licensed, bonded contractors standing by to give estimates on repairs that must be done right away.
And then the real fun begins!
We have only done minor, cosmetic re-habbing, so undertaking this massive project is a terrifying thought. We were smart not to risk more money than we had available. We knew the house had to have a new roof, so we figured an additional $10,000 into our purchase price to make sure we stayed within the numbers we could manage. Once we put a roof on, we can take our time with most of the other repairs, since they don't have the same potential to damage the structure.
Our time line is something like this: the auction ended on May 11, 2011. The next day we received a notice that we had not met the seller's reserve and we learned for the first time what that reserve was. Over the next 2 days, we went back and forth, each side inching towards the middle. In the end, we went up from $17,500 to $22,500 and the seller went down from $31,250 to $22,500. We received an emailed purchase agreement, filled that out, signed and initialled everything and overnighted it to the auction site. They in turn overnighted a copy of the agreement, along with our $2000 deposit to the seller. The seller took several days to officially accept the purchase agreement and now we are just waiting for a contract to be sent. Our tentative closing date is June 17th and we will take possession at closing, so auctions tend to move pretty fast!
This post is long and way too full of details, so I'll stop here and we'll cover some of the fun stuff in a later post!