Understanding the Real Estate Auction ContractFebruary 7th, 2011 by PA - Bloger
Many home buyers and real estate investors are seeing the allure and financial benefit of real estate auctions. Some people are tempted to attend and start the bidding, but are hesitant due to inexperience with how the real estate auction contract works once a bid is accepted. They don’t have to wait any longer – a little research and some planning are all you need to be well-equipped for a real estate auction.
A typical real estate auction contract usually contains three basics: 1) As is, where is condition; 2) No contingencies; 3) Closing within 30 days. For the first item, “As is, where is” basically explains itself. In a nutshell, when purchasing a property at auction, what you see is what you get. Unless there is something specifically outlined within the contract, the “As is, where is” item means that the seller is not responsible for any damages or repairs the property may need. That may seem like a negative to some, but this is often where there is a bargain to be made. Many real estate investors see auctions as a goldmine of opportunity to obtain a property for below market value, where they can usually remedy any issues quickly and end up getting a lot of bang for their buck.
The ‘No contingency’ aspect of the contract is also relatively self-explanatory. Most real estate auction contracts have no financing contingencies, making it imperative for a prospective buyer to be sure of their ability to purchase the property in question. Usually, there are no refunds on bid deposits due to lack of financing. According to The Auctionarium, Inc., “No contingencies mean you need to have funds or financing lined up. If you bid on the house, then worked to get financing, it could be too late and you might face the prospect of not being able to close because your lender was unable to provide funding. The other main contingency would be an inspection contingency. Since you’re unable to renegotiate after a home inspection…, you might want to bring your contractor along while you preview the house… Bidding at auction is a legal and binding contract to purchase on the published terms and conditions.”
Expedient, no-nonsense closings are often a big draw for buyers and investors at real estate auctions. The typical contract for an auction property stipulates a 30-day closing. This straightforward process works well for buyers and investors, where the usual back-and-forth negotiations in traditional sales are avoided. As Hawaiian auction company Paradise Land and Homes states, “Rarely does an auction purchase contract fail to proceed to closing. This contrasts with conventional marketing/traditional real estate listings which historically have far lower success rates. Because of the absence of many of the contingencies in a typical real estate contract, auction sales contracts are far more likely to close.”
Real estate auctions are providing both buyers and sellers with a very clear-cut transaction, offering both sides a very practical and timely option to capitalize on today’s tumultuous real estate market.
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