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How to buy a home for pennies on the dollar!

AuctionIt’s a buyer’s market right now, and there are deals to be had. I’m going to tell you the best deal yet, but it’s not for the faint of heart.

Short Sales and REOs are good, but there is another alternative.

There is an oversupply of homes on the market right now. Ask anyone you know and they will tell you of a neighbor’s home for sale. Drive down any residential street and you’ll see the yard signs. Visit any condo complex and you’ll see the signs in the window. What you don’t see may be the best buy out there…

Going Once… Going Twice… Sold!

I had a client make a winning bid at an auction this last month. It is exactly like you may have seen on TV. It’s fast paced, and I saw more than a few people get caught up in the excitement.  But the potential deals were tremendous… The properties being auctioned were located throughout the state of WA with the majority in the Puget Sound area.  Here are a few examples of the properties sold:

  • A Condo in Renton previously valued at $199,900 (realistically worth maybe $130,000?) sold at auction for $30,000.
  • A home in Bellevue, WA previously valued at $510,000 sold for $252,500
  • A home in Woodinville previously valued at $1,091,000 sold at auction for $490,000!

In total, there were nearly 100 properties sold that night at Meydenbauer Center. My client picked up a Seattle condo previously valued at $224,950 for only $102,500.

What’s the Catch You Ask?

Anyone can make bids at an auction. You just need to be pre-approved for financing (or be able to pay in cash). You need to bring a cashier’s check for a deposit (usually $5000). You also must be aware that your purchase (if successful) has NO CONTINGENCIES whatsoever. That’s right, if you’re the winning bidder, you have no financing contingency, no inspection contingency, NOTHING. All properties are sold AS-IS. The AS-IS part is what scares most people away because you could be buying a mold-infested rat trap without knowing it.  That’s why you need to…

Get Your Ducks Lined Up.

Before bidding on a property (or properties), you need to do your due diligence. This means you need to view the property, inspect it, and ask your questions all BEFORE the auction.  This sequence is much different than the typical real estate purchase where you make an offer subject to certain things working out during the escrow period.  Access and information to an auction property can be difficult to obtain, which is why it is extremely important to have an agent helping and representing you.

But Who Pays the Agent?

Many buyers think that if they use an agent to purchase a property at auction, the commission fees come out of their pocket. It’s not true! The auction house pays the fee to the agent. If you don’t have an agent, the auction house just keeps the fees, so take advantage of the free assistance.  The tough part about auctions is that the commission fees are so small that many agents don’t want to bother with them.  Often times, the commissions they receive just barely cover their expenses. I gained a client once because the buyer’s previous agent didn’t want to “waste his time” on an auction property.

A Flipper’s Dream

If I were to guess, I’d speculate that nearly 25% of the properties sold at auction will be fixed up and sold again within 6 months of their auction sale. Another 50% will be kept as investment properties (rentals), and the remaining 25% will be owner occupied. I’m going to track this latest batch of homes in the next six months and see if I’m right.  I’ll keep you posted on my results…

If you’ve ever purchased a property at auction, I’d be interested in hearing your experience.  Leave me a comment with your thoughts!

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