Preparing for an As-Is Sale Auction Sale
What is a contingency in real estate?
A contingency in real estate is a clause that accounts for a specific circumstance or event and stipulates what may happen as a result of that unforeseen occurrence. Since public auction sales are typically selling the property in as-is condition, there is often an absence of contingencies. As a result, buyers are often granted time and opportunities to perform their due diligence in advance of placing a bid on the property.
Typically? Does this mean there are exceptions?
Sometimes. In most cases, however, sellers are looking for the sale to take place as a cash sale without contingencies for financing or inspections. They are also usually looking for all offers to be cash-like transactions. Since auction sales allow buyers to present their offer on a level playing field, any contingency that is submitted as part of an offer needs to occur outside of the auction, via a pre-auction offer. Otherwise, the only contingencies and concessions that are permissible are those that are advertised as part of the sale and announced by the auctioneer as part of the auction’s terms of sale.
Does this mean you have to have the full purchase price with you on auction day?
No, we wouldn’t expect you to. Although auction sales are usually cash transactions, you aren’t normally expected to have the full purchase price accessible on the day of the auction. Instead, you are only required to have the required deposit accessible. The remaining purchase price needs to be accessible enough so you may access the funds within the specified time frame. Auction sales can be funded through a variety of sources. Yes, some buyers use cash that can be withdrawn in a moment’s notice from their savings account. However, sellers understand that buyers may be using a liquid funding source, such as an IRA or 401(k). For that reason, the full purchase price is not typically due until 30-45 days after a contract is ratified. If you would like to learn more about this topic, please visit the Financing Your Auction Purchase series from our blog.
Financing Your Auction Purchase
We kindly remind buyers to perform their due diligence. Consider the total purchase price and related fees before placing legally binding bids. In the event that a buyer cannot settle in a timely manner, they will be at risk of breaching their contractual agreement. If you are considering the use of a conventional loan product, please be sure to discuss the terms of the sale with your lender. Many auction properties do not immediately qualify for conventional loans. For example, a lender may require that the property pass a home inspection, but the property may not pass because the utilities are turned off. Be sure to perform due diligence in understanding what requirements your lender may have, if one is involved, and be prepared with a backup plan.