Real Estate Auction Sites: Buyers Beware!
So, you are in the market to buy a home and you want to save money by purchasing one off of an online auction site? There are several things to consider before going down that road.
On the surface, the asking price can be very appealing. I’m sure that you’ve heard the old saying, “if it looks too good to be true, then it usually is.”
You may or may not be aware, but many of the homes that are for sale on the auction sites are there simply because they are in such poor condition they couldn’t get sold with the traditional way of a sale.
Many of the homes that you will find on the auction sites have foundation issues, or missing plumbing, electrical issues and so much more! If you do not have a lot of available cash for repairs or intend on completing the purchase with a renovation home loan, you might want to think twice before considering an auction site home.
If the information above isn’t enough to make you second guess an auction site home, perhaps the information below will help.
Almost all of the auction sites carry a “buyer’s premium”. This simply means, if you are the winning bidder on a home, the buyer’s premium will be tacked on top of your purchase.
It seems that all of the auction sites have different amounts being charged for the buyer’s premiums. Be very careful before placing your bid and make sure that your Realtor has provided you with all of the information needed. It may also be in your best interest to do a lot of your own reading and research in the event that your Realtor may have missed something.
I’ve seen buyer’s premiums as low as a few hundred dollars and I’ve also seen “unlimited” amounts for buyer’s premiums. There is a relatively new online real estate auction site that is charging buyer’s a whopping and ridiculous 5% premium.
By the way, if you are financing your home purchase, be prepared to pay the 5% out of your own pocket. Lenders do not allow buyer premiums to be part of the financing of the home.
Recently, some very good clients of mine were interested in buying a nice home on 5 acres in Butler County. They were thrilled because the home was in pretty decent shape (RARE for an auction home) and it seemed to have all of the amenities they wanted.
The initial asking price was low enough that it caught their interest and to register on the site to be able to have me bid for them. Once I informed them about the 5% buyer premium, that tarnished their excitement over the home. But, they decided to keep an eye on the auction of the home anyway in hopes the price wouldn’t go too high and they could still purchase the property.
The home ended up selling for nearly $50,000 over the “starting bid” price and my client’s walked away deeply saddened because they weren’t able to complete the purchase. They had saved up several thousand dollars towards a home purchase, they just didn’t realize that a greedy auction site wanted to consume their life savings just for the opportunity to purchase their listing.
Let’s do the math. A traditional home purchase using FHA financing that requires 3.5% down on a $200,000 purchase would be $7,000 down. But, if spending the same amount of money on a purchase using the auction site that charges 5% buyer premium, now, instead of $7,000 down, you are looking at having to put $17,000 down on the purchase.
I’m sure the example above has you all excited about going out and finding a home to buy on one of the online auction sites, so give me a call today and let’s get started! (Sorry, I had to throw in a bit of my sarcasm)
All kidding aside, check out my website at www.martysnyder.com and let me know which homes that you’d like to see today or in the near future.
I have already successfully assisted hundreds of very satisfied clients with a home sale or purchase and would be happy to assist you as well! I take the extra steps needed to make sure that my clients are fully protected in every aspect of a real estate transaction.