real estate

Make offer on home prior to auction?

Steve McLindenQuestionDear Real Estate Adviser,
I would like to make an offer on a home coming up for auction and do so prior to the public-sale date. How do I go about doing this? What commission would an auctioneer normally receive for selling a home at auction? Could I save on this cost by buying beforehand?
-- Angela

AnswerDear Angela,
The marketing and auction-day costs could be lower for the seller if you were to buy before the auction, and some of those savings could be passed on to you. But it's not the auctioneer costs that are relevant. Rather, the auction house's fee -- which is equivalent to a real estate agent commission (usually 5 percent to 10 percent) -- is what counts. Again, the seller typically is obliged to pay this.

As for getting the drop on other bidders, you certainly can contact the seller or seller's agent before the auction and find out the sum that will satisfy the home loan, determine if you can (or want) to pay that amount, then make your offer. But first, do your homework.

Many such homes are viewable in the weeks prior to the public sale and some have written reports available regarding home inspections, property surveys and other details. Exceptions are sheriff's auctions, which typically are not viewable.

Many, if not most, for-auction homes these days are transitioning into foreclosure or are already there. Hence, their condition is somewhat suspect.

Check for any liens against the property such as tax liens, contractor liens, association dues and other debtor liens; you don't want to be responsible for settling them. So you will need to either pay for a title search or conduct one yourself at the county clerk's office. (I suggest the former.)

Also, check with the local building department to see if any recent additions to the home were not properly permitted.

I realize you are trying to save money, but enlisting a buyer's agent experienced in preforeclosures, foreclosures and auctions is probably a wise move.

One of the big negotiating pluses is that you know the seller is motivated. Most auction sellers have tried conventional marketing with no success and are not ambiguous about their sale, so that's in your favor. A hard offer from you removes the fear that no serious buyers will attend on auction day.

Conversely, those same sellers are hoping a bid mentality will prevail on auction day and drive up the price, so there may be less motivation to deal with lowball pre-auction offers. It helps to have representation to navigate all this.

You need to have the funds to pay for the house quickly, either in cash or financing lined up through pre-approval from a mortgage lender. Realize that such a pre-auction bid as yours may prompt a competing bid by another interested party, which is a phenomenon called "shopping a bid."

To avoid this, consider making your offer available for only a short period. Lately, some auction firms have been actively soliciting pre-auction offers, a kind of "buy it now" strategy a la eBay.

Finally, if you can't strike a deal, you can always show up on auction day with another offer. Most successful -- and happy -- auction bidders target more than one home so they aren't pinning their hopes on just one, which can tend to make bidders overpay.

Your bidding strategy will hinge on whether the public sale is a reserve auction -- which has a minimum, or "floor" price -- or an absolute auction, which means the flat-out highest bidder gets the home, regardless. Realize that in some states, auction buyers are required to pay the full sale price immediately. Good luck!

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