Check Financing Before Auction
If you’re like many people, you’ve recently read stories or heard from friends about the bargains that you can find at real estate auctions. Tales abound of buyers getting a house for 10%, 20% or even more than 30% below its market value.
True, auction buyers who bid wisely and do all their homework first can pick up some good deals. But experts say that one of the most important factors involved in buying at an auction is one that’s often overlooked: Lining up a good loan package to close the deal.
“Good financing can make the difference between getting a good auction bargain and getting a great one,” summed up Ken Urbanis, an auction expert and mortgage banker with La Jolla-based American Residential Mortgage Corp.
If you’re thinking about buying a home at an auction, Urbanis said, you should first obtain a catalogue on the property by visiting the on-site auction office or by calling the builder, lender or auctioneer who’s holding the sale.
The brochures usually include information about special loan programs that buyers may be offered, as well as details about the project itself.
Most companies that use auctions contract in advance with a lender who’ll offer good terms to buyers.
Since the lender knows that it will likely finance the purchase of dozens or even hundreds of homes in the development, it may be able to provide below-market rates or other types of savings.
“The in-house lender usually offers the best (financing) deal, partly because it’s working on an economy of scale,” said Ann Hambly, a vice president at auctioneer LFC Real Estate Marketing Services in Newport Beach.
In addition, Hambly said, the on-site lender is often a mortgage broker--meaning that he or she can offer loans from a variety of financial institutions instead of just one.
Of course, if you don’t like the financing programs offered by the in-house lender, you can usually use a different company.
No matter which lender you choose, it’s a good idea to have the loan officer “pre-qualify” you before the auction is held. The officer will look at your income, debt obligations and other items to determine how much you’re qualified to borrow.
“Pre-qualifying can help you avoid bidding on homes that you can’t afford,” said Urbanis at American Residential Mortgage. “You wouldn’t want to bid $250,000 for a home if you can only get a loan for $100,000.”
More than likely, you’ll be required to preregister for the auction. You’ll probably also have to present a cashier’s check for $2,500, $5,000 or even more in order to gain admittance on the day the auction is held.
It’s important to find out how your cashier’s check will be handled.
If you’re not a successful bidder, you can usually simply take the check home with you and redeposit it in your bank account the next day.
However, if you are the top bidder for a home and your offer is accepted, the auction house will probably be legally entitled to keep the check if you get cold feet and back out of the deal.
Even scarier, some auction houses demand that you purchase the home even if you later fail to line up the financing that’s needed to complete the purchase. So if you can’t get a loan, you’ll not only lose your deposit but may also may also be forced to go through with the deal.
“That’s all the more reason why you should read the catalogue and all the fine print of any documents that you’re asked to sign,” said Bill Stevenson, president of auctioneer giant Kennedy-Wilson Inc. in Santa Monica.
“You can pick up some good buys at an auction, but only if you know what you’re doing first.”
Four of Biggest Auctioneers
Most developers and lenders who auction property employ the services of professional auctioneers. Below are the phone numbers for four of the Southland’s biggest real-estate auction houses.
* Auction Marketing Services, Irvine: (800) 677-7772.
* Kennedy-Wilson Inc., Santa Monica: (800) 522-6664.
* LFC Real Estate Marketing Services, Newport Beach:
(800) 966-0660.
* Real Estate Disposition Corp., Santa Ana: (800) 266-4444.
Average Rates for Residential Mortgages
Average rates for residential mortgages as of July 19, 1991.
Survey Conventional Mortgages Adjustable Mortgages Area 15 Year 30 Year Composite 1 Year Composite National 9.36% 9.66% 9.52% 7.20% 7.56% California 9.59 9.86 9.73 7.45 7.58 Connecticut 9.32 9.66 9.52 7.11 7.41 Wash. D.C. 9.26 9.56 9.42 6.88 7.32 Florida 9.37 9.68 9.54 7.16 7.45 Mass. 9.36 9.63 9.50 7.13 7.67 New Jersey 9.31 9.62 9.47 7.21 7.71 N.Y. Metro 9.38 9.69 9.55 7.23 7.64 New York 9.44 9.77 9.63 7.30 7.65 N.Y. Co-ops 9.60 9.92 9.82 7.68 8.13 Pa. 9.13 9.49 9.32 7.12 7.39 Texas 9.28 9.56 9.42 7.17 7.45
SOURCE: HSH Associates, Butler, N.J.
