Activities : Buying Homes at Auction – Are you getting a good deal?

Buying Homes at Auction – Are you getting a good deal?

There are many ways to buy a house in this new age of technology, but the concern for many home buyers is getting a good deal when making one of the biggest purchase and even so for many investors buying below market is what make sense for any positive cash after repair.

Real estate auction is not a new concept but with technology many auctioneers are in the market place and buyers can submit offers online from the comfort of their home, office or on the road. The question is when you buy a house via auction are you actually getting a bargain? Here are some things to consider when buying at auction-

- - There are no contingencies allowed- That means house is sold as is- many times you don’t have the option of home inspection after winning the bid, appraiser or financing contingency - What this means is once you are the winning bid you must buy the house or lose your deposit if you cannot close on the house.
The required deposit are many times 10% of the winning bid and in the form of certified fund payable to the auctioneer, some online auctioneer requires a $2500 deposit before you can register to submit offers online- That means you need a credit card that have at least $2500 available credit.-

Buyers must pay auction premium which is usually a percentage of the winning bid and it can range from 4.5% to 10%. (Yes 10% buyer’s premium! I just saw one in our MLS today). How much does this translate to in dollars? If a winning bid is $250,000 - Below are the potential premium buyer must pay

4.5% +$250,000 = $261,250

5% + $250,000 = $262500

10% +250,000 = $275,000

- Buyers must pay all closing cost associated with the sale- That means all transfer and recordation – See below the estimate of taxes on a $250,000 winning bid for a house in Maryland (Montgomery County)
- State Recordation tax: $1335.00

- County Transfer Tax: $2500.00
- Buyers must close in specified time frame establish by auctioneer, as early as 21 days depending on terms for each auctioneer.

If a buyer wins a bid at auction for a house in Maryland for $250,000 – Below are the different scenarios the estimated cost of the house will be:

Cash Offer with 5% buyer’s premium

Winning Bid: $250,000 + $12,500 (buyer’s Premium) + $3896.00 (Taxes & Recordation) + $3843.00 (Closing costs fees: title, survey and others): Total Cash need to close: $270,239.00

FHA Buyer with 5% Buyer’s Premium:

Winning Bid: $250,000 + $12,500 (buyer’s premium) + $3896.00 (Taxes & Recordation) + 1% Loan points $2655.00 + 1.5% MIP $3937.50 + $4342.50 (Closing costs fees: title, survey, MIP, Appraisal and others): Total Cost need to close: = $277,331.00

To determine if this is a good deal, buyers must determine what the current market value of the house is, what the value will be after any repairs or update. If similar houses in the same neighborhood or community are selling for between $250,000 to $300,000 a buyer using any form of financing (FHA or Conventional) is not necessarily getting a good deal.