How much value do you put Value for unknowns when purchasing a
property in auction?
EXECUTIVE SUMMARY:
How much value do you put value for unknowns when purchasing a
property in auction?
In most parts, purchasing a property at auction will
be different than regular (non-auctioned,
non-foreclosed) sales. One of the differences is
that at auction, the purchaser buys the property “AS
IS” with no promises to fix/repair or warranty.
Disclaimer::
Not
all points specified here should negatively impact
your decision to purchase a property at auction nor
applicable for all banks and properties. Each
auction or “foreclosure at court step” sale is
different and requires a lot of details to be
handled when buying a property at auction. Consult
with your real estate agent and/or your real estate
attorney for questions regarding purchasing a
property at auction.
As we stated earlier, the
real question is that, in view of the
purchaser, how much value (if any) he/(she) should
account for all these unknowns when buying a
property at auction vs. when he is buying regular
sale property. The answer is different for each case
and each type of purchaser and their personalities,
e.g., individual looking to live in the property or
investor that wants to flip and profit.
Summary of unknown facts are listed below.
Note: I put these percentages (in red color)
based on my experience and assuming property values
at $200,000. I would like to receive your comments,
inputs and suggestions based on your experiences and
expertise.
1.
Property is “AS
IS” with no promises to fix/repair or warranty.
The condition of the property and not to be move-in
ready, might have some negative psychology impact on
some purchaser. Please note that we are not talking
about the repair cost here, just psychology impact.

What percentage of the purchase price do you think
we need to put here?
For individual looking to live in the property
0.5%
of the Purchase Price
For investor to flip-over
the property
0.0% % of the
Purchase Price
2.
No Seller Disclosure
Notice.
It means you will not get the history of the things
that had happened to the property (if any). For some
buyers, this could be a discomfort or an issue, for
other may not.
What percentage of the purchase price do you think
we need to put here?
For individual looking to live in the property
0.5%
of the Purchase Price
For investor to flip-over
the property
0.0% of the
Purchase Price
3.
No Option Period and No Unrestricted Rights to
Terminate the Contract,
When you bid and win, you must buy and have no right
to terminate (at least without a lot of penalty).
What percentage of the purchase price do you think
we need to put here?
For individual looking to live in the property
1.0%
of the Purchase Price
 For investor to flip-over
the property
0.0% of the
Purchase Price
4.
Not
Knowing the Condition of the house and No
Inspection.
Not having inspection and knowing condition of the
property is a major risk that should be accounted
for.
What percentage of the purchase price do you think
we need to put here?
For individual looking to live in the property
0.5%
of the Purchase Price
For investor to flip-over
the property
0.0% of the
Purchase Price
5.
Special
Warranty Deed Instead of General Warranty Deed
Banks only warrants the title against their own
actions or omissions. They warrant nothing prior to
their taking title.
What percentage of the purchase price do you think
we need to put here?
For individual looking to live in the property
0.1%
of the Purchase Price
For investor to flip-over
the property
0.0% of the
Purchase Price
6.
Non-Guaranty
Acceptance of Offer:
Seller can back up from his acceptance or contract
and owe nothing except returning buyer's money. Loss
of times, efforts, expenses and opportunities for
other purchases.
What percentage of the purchase price do you think
we need to put here?
For individual looking to live in the property
0.5%
of the Purchase Price
For investor to flip-over
the property
0.1% of the
Purchase Price
7.
Non-Performance
Charge.
If you fail to pay the entire amount with cash
instrument (e.g., cash, cashier check or money
order), immediately or after few minutes of winning,
you will be at default and must pay a large amount
of penalty (in Collin County this penalty is 20%).
What percentage of the purchase price do you think
we need to put for each item listed above?
For individual looking to live in the property
0.5%
of the Purchase Price
For investor
to flip-over the property
0.1% of the
Purchase Price

Summary Total:
These soft values vary greatly from a purchaser to
another purchaser.
The question is that, in view of the purchaser, how
much his entire purchase money worth more compare to
low down payment and getting the loan.

What percentage of the purchase price do you think
we need to put for each item listed above?
For individual looking to live in the property
2.7%
of the Purchase Price
For investor to flip-over
the property
0.2%% of the
Purchase Price
In
our example, where the house value was assumed
$200,000, these inconveniences and psychology
impact on some purchaser (if any) translate in
$5,400 and $400 for individual planning to live in
the house and for investors planning to fix/repair
and flipping over and sell it back to public for
profit, respectively.
As we stated earlier, the
real question is that, in view of the
purchaser, how much value (if any) he/(she) should
account for all these unknowns when buying a
property at auction vs. when he is buying regular
sale property. The answer is different for each case
and each type of purchaser and their personalities,
e.g., individual looking to live in the property or
investor that wants to flip and profit.
I would like to receive your comments, inputs and
suggestions based on your experiences and expertise.
For more
information on Foreclosure Process and purchasing
foreclosed (REO) property, please visit
http://www.TexasFiveStarRealty.com/Foreclosure_Process.asp
For a
current list of foreclosed (REO) properties in North
Texas, please visit
http://www.TexasFiveStarRealty.com/List_of_Foreclosures.asp
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