When you wish to buy a house, you might consider going to real estate auctions. Most people nowadays are using this to acquire a house. It might be helpful to refrain from auctions until you familiarize yourself with the process. Following are some disadvantages that you should be aware of before you proceed.
1. Auctions require a high binder. Most auctions require high and non-refundable binder, which usually amounts to at least ten percent. This could be a bit risky especially when you are a novice in the real estate business. Since it is non-refundable, you cannot allow any room for error. If you mess up the financing or overestimated your capacity to buy, you could lose the whole ten percent deposit, a considerable loss of money.
2. Because auctions are typically run over a short period, you will not be able to analyze the property and its potentials in the market thoroughly. The list of properties will be sent to you a week or two weeks before the auction date, giving you a limited time to study it. This way, it is easier to make mistakes in your choice.
3. Be careful on paying additional liens. There are instances where a second mortgage holder forecloses without liens as the first mortgage that went into default. Usually, the auction starts at the balance of the second mortgage. Now, if you buy the home, this may lead you to be automatically responsible to pay the liens of the first mortgage. Unless you do a quick title search on each real estate investment, you might be stuck with many unexpected debts, which could ruin your investment.
4. The atmosphere in a real estate auction can be quite intoxicating. It usually moves at a fast pace and loud. You might find yourself surrounded by auctioneers, real estate bidders and gawkers making an almost circus setting in turning a bidder into a home buyer within minutes of the auction.
5. All properties sold at auctions are offered ‘as-is’ which means that if there are problems in the property, there is no recourse for you. There is a possibility that you will be able to bid more than the worth of the property since you have not had the time for a thorough inspection of it. You might also fail to see me you might be responsible for tax liens on your new property. If you have not had the time to inspect the property, you might overbid on it, or fail to see expensive problems underneath the surface.
6. Be careful of properties in an auction that are in a location far from your locality. You might not have any idea on the prevalent market rates in the location and any troubles or issues over there. Make sure you have an idea of the sewage disposal, water supply and electricity concerns of the area. Seek the assistance of a title company that could provide valuable tips regarding concerns in land acquisition.
If you will be able to conduct an extensive inspection before you buy it and make sure that you know the process in property auctions, this could ease a lot of your uncertainty that normally comes in bidding on a home than in buying in the traditional manner.