RISMEDIA, September 4, 2009—(MCT)—The atmosphere is electric, the deals can be dazzling, and the process can turn a bidder into a home buyer seemingly in a matter of minutes.
But as interest in real estate auctions grows, bidders are finding out it pays to read the fine print, be prepared and realize that it’s best not to hire the movers until the deal, not the auction, is sealed. Not everyone who “wins” at an auction walks away with a new home.
Consider Cicero, Ill., resident Karina Castaneda, who happily left an auction in late June thinking she’d just purchased her first home. She had the winning bid on a four-bedroom, 2 1/2-bath town home at Enclave at Galewood Crossing on Chicago’s West Side. Her bid and the associated fees totaled about $120,000. She put up $5,000 of earnest money at the auction, signed the necessary documents and a few days later was e-mailed more forms to sign. Then she received a phone call from auctioneer Rick Levin & Associates that the developer, Red Seal Homes, was not accepting her bid. Confused, Castaneda said she called Red Seal and was offered a different unit for a price closer to $200,000. She declined and felt wronged.
But language in the contract gave the developer the ability to reject her bid, even though it was the highest bid. Now, Castaneda is back in the market for a home and hasn’t ruled out auctions, because of the price breaks they offer. “I figure, what are my chances that it will happen twice?” she said.
A recent auction of the former Chicago post office demonstrates the care that needs to be taken by bidders. Despite advertising that the building would be sold “absolute,” meaning to whoever made the highest bid, a potential bidder went to court to postpone the event, arguing that language in the contract was unclear and made it sound like the winning bid could be rejected. The auctioneer, Rick Levin & Associates, disagreed with the interpretation but agreed to remove the language, and the event proceeded as scheduled.
The use of auctions as a sales technique has been growing all year, and auction companies expect the late summer and fall to yield a bumper crop of events since foreclosure moratoriums have expired and home builders have grown more desperate to shrink their inventory.
As interest in auctions has grown, the industry is trying to better educate potential bidders about what it admits can be a complicated process, particularly during the heat of the moment at fast-paced events.
Auction companies are posting pictures of properties and open-house dates on their websites. Copies of an auction’s terms and conditions and the sales contract are usually available there too. Auctioneers also are trying to do more due diligence themselves, to help sellers appropriately price properties so they will sell, rather than the auctions just being used as a marketing tactic.
Bank foreclosures may provide the best opportunities for consumers, because lenders are anxious, said Paul Rogers, managing broker of Inland Real Estate Auctions, who thinks the uptick in auctions is only just beginning. “A lot of these banks were sitting on these bad deals and hoping these things were going to turn around, and now they realize the problems aren’t going to go away,” Rogers said. “They want to structure these deals so the properties and the problems go away.”
A concern about falling comparable prices also is prompting more developers, and the lenders who hold their loans, to consider selling their best homes at auction this fall before more distressed properties enter the auction system.
“People that sell now will do better than if they sell later,” said Michael Fine, executive vice president of Sheldon Good & Co. “As the better properties get sold now, the lesser properties will be left, and that will drag down comparisons.”
Tips for bidders
-First go to an auction as an observer to get a feel for the fast-paced process.
-Read the auction’s terms and conditions sheet and the contract, and consider showing it to an attorney before the auction. Most auction companies post the documents on their websites.
-If possible, inspect the property. Most are sold “as is.”
-Research the neighborhood and comparable sales so you don’t spend more than you should for a house.
-Bring what’s required if you are going to bid. Most auctions require bidders to put up a cashier’s check for a certain amount to show their true interest.
Types of auctions
Absolute: The highest bidder wins the auction, regardless of price. The same as an auction without reserve.
With reserve: An unpublished price the seller has set for the property. It can be different than the minimum bid. The seller can accept or decline a winning bid within a specified amount of time after the auction.
Subject to lender approval: A lender, who either owns a foreclosure or who has financed a developer, must agree to sell the home for the amount of the winning bid.
(c) 2009, Chicago Tribune.
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