The most beautiful sound to a bargain-hunting home buyer is "going, going, gone." You are the successful bidder for the house of your dreams at a real estate auction! Whenever there is a downturn in the real estate market, there is an upsurge in housing auctions. That time is now.
Auctions help developers clear out inventory and lending institutions rid their books of non-performing assets. Even private sellers sometimes use auctions as a way to stimulate a sense of time pressure when the market is so slow that no pressure exists.
Shortly, the Resolution Trust Corp., the government agency created to dispose of assets of failed thrift institutions, will be holding auctions all over the country for residential properties. Prices will be in ranges that the average American taxpayer can afford.
There could be bargains for prospective home buyers, if they know how to avoid the pitfalls, according to real estate consumer advocate Sonny Bloch, co-author of "How You Can Profit From the S&L Bailout," a new Bantam book released this month.
"Perhaps the biggest danger at an auction is allowing emotional response to overrule rational thought," says Bloch. "Acting on impulse is so easy and the 'hype' is so stimulating: the fast, continuous talking; the sense of immediacy; and the knowledge that your rivals are right there in the audience with you. The men and women who bid safely and get the best deals are those who spend time doing the necessary preparation work before the auction and then come to the selling arena armed with knowledge, rational restraint and the emotional distance to know that this is not their only chance at a good deal."
Bloch offers some suggestions:
* Know local property values and the probable market value of the particular piece of property in question. If you see an auction advertised with a minimum bid and your research shows that the minimum is just slightly below current market value, pass it by.
* If possible, have more than one property in mind on which to bid. Having a list of acceptable properties will keep you from getting into emotional bidding as you see your dream property being chased by someone else.
* Inspect all your prospective buys thoroughly beforehand since most auctioned properties are sold "as is" on the day of the auction. There's no negotiating after the purchase contract is signed.
* Examine all pertinent documents. For instance, if you plan to buy a condo or co-op, examine the offering prospectus. Read the bylaws and house rules for the community. If it's a single family home, get information on matters such as taxes, heating costs, sewer, water and waste removal costs.
* Decide on a price that you can afford for each of the properties that interests you and then resolve not to exceed that number.
* Prequalify for financing. Even if the auction advertises that financing can be arranged, you should check beforehand on how much debt you can carry and where to get the best rates. Sometimes the interest rates and terms offered at auction are excellent, sometimes they're not. Investigate beforehand.
* Be on the lookout for "shills." (Shills are people who are placed in the audience by unscrupulous sellers for the sole function of making bids that force buyers to bid higher for the properties.) If you see the same person bidding on many properties without winning his bid, it's probably a shill.
* Read every word of the contract. Better yet, have an attorney review clauses written into it (in some states, this is mandatory).
* Check your state's consumer protection legislation. Several states have legal rescission periods so that consumers can change their minds about a purchase if they notify the seller in writing within three to 15 days after signing a contract. Have your lawyer draft the letter and send it by registered mail with return receipt required.