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The probate auction can be a great way to get a good deal on your home purchase.  But buying a home at auction has significant risks.

 

When a homeowner dies, and their home is not held within a trust, the property will go through probate, which is the legal settling of a deceased person’s estate.

 

My clients had their eye on a home that was scheduled for probate auction in Alhambra.  It is walking distance to their parent’s home, making it convenient and ideal.

 

The home, while in a nice location, has a lot of deferred maintenance and structural issues.  The bathrooms, kitchen, and windows are all original from the 60s.  The blood red carpet is worn-through and stained.  The telltale signs of foundation problems and/or soil movement are clear from the horizontal and vertical cracks along the walls and ceiling, and the uneven floors.

 

Despite the property’s poor condition, over 60 hopeful homeowners crowded into the front yard on this Saturday morning for the opportunity to purchase this home.  Part of the draw was the low listing price.  The 4-bedroom, 3-bathroom property was being advertised for sale at $419,000.  Nearby homes were selling anywhere from $600,000-$750,000.  But this is a probate sale; the terms are completely different.

 

First of all, there is no inspection period.  The buyer must agree to purchase the property “as-is, where-is,” and must waive the inspection contingency.  This is a significant risk, especially for a property like this one that has clear signs of structural issues.  It is important to understand what repairs are needed and have an estimate of costs to know how much more money you may have to put into the property to fix it up.

 

The second major risk is that the buyer must also waive the loan contingency.  While the buyer is still allowed to secure a mortgage loan for the purchase, the buyer will loose their earnest money deposit in the event that they cannot purchase the property because they cannot secure financing.

 

Another thing to consider is that escrow is just 45 days, which can be a difficult deadline to meet when you are not prepared with your mortgage documents.  In this instance, the buyer will be charged $200 per day if escrow surpasses 45 days.

 

Finally, the sale will still need court confirmation.  This means that once there is an accepted offer on the property, that buyer will still need to appear in court to confirm the sale.  At that time, anyone else can also appear in court and over-bid on the property.  Ultimately, the highest bidder at the court will win the purchase of the home.

 

The home auction today went quickly.  People were allowed to meander around the house and yard for about an hour before the auction began.  When the time came, the auctioneer stood on the front steps of the home and announced the beginning of the auction along with the terms of the sale.

 

The bidding began at $250,000, and quickly escalated to $500,000.  With at least $100,000 in needed repairs, I estimated the sale price to be in the low- to mid- $600,000s.

 

Little by little the bidding price rose and rose.  It slowed somewhat as the price climbed above $600,000.  Then, it went back and forth a few times… going once… going twice…. SOLD!  For $660,000!

 

Unfortunately, this was out of my buyer’s price range, so they did not win the house today.  But who knows, there’s always the court confirmation…

Probate Auctio 4.29.17

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This article has 9 comments

  1. Justine

    I agree with you! Buying a house from a probate auction has quite some factors that you have to take in consideration when you’re making the ”big” decision.

    Also don’t probate sales take longer than the traditional real estate ones?

  2. R

    I’ve had similar experiences, at first the property seems like a good option due to a low listing price but when you don’t have an inspection period you don’t really have an idea of the integrity of the property, and the risks increase with the price.
    Also the low price range attracts a lot of people who want to flip houses and they drive the price even higher due to the competition.
    But if the price is above the price range is better to just forget about the property because there are always unforeseen situations where you will be forced to spend more money.

    • bandanablanket@gmail.com

      That’s real estate in Los Angeles county for ya! $660,000 for an almost unlivable fifty-year old house! Wow. With houses going for top prices of $750,000, the profit in flipping this house is going to be, at best, in the $40,000 – $50,000 range. And that’s if there aren’t any major foundation repairs or soils mitigation and a contractor can be found to do everything for less than $50k. I guess it’s doable but very risky with the cracked lines and need for a total renovation.

    • saygorem@gmail.com

      Yes, I agree that you should let go of the house in biddjng and don’t go for a higher bid because there is so much repair to ba done. Its not worth the money to repair a house that you bought in a biddjng with an expensive bid.

  3. jahanzebali1982@gmail.com

    It is better to view the building before you bid or buy it so have a better idea about the real price of this property. I did the same but I was not sure about the building structure. I think I made a quick decision and that was my mistake. I wasted a lot of my money by investing in such risky way. I will do a proper research before I purchase any building.

    • saygorem@gmail.com

      I find your post informative and you learned from your mistake. That is good to hear because you worked hard for the money you’ve got for it to go to waste is such a big regret. I also learned a lesson in your experience.

  4. JonPanama

    Buying homes at an auction can be an exciting gamble, but it doesn’t have the same safeguards as purchasing a home through normal mediums.

    I had bought my first home at auction, but I had thousands in unexpected repairs. Overall, I had saved money but I had to put a lot of time into it.

  5. saygorem@gmail.com

    I have no idea that homes can be sold by auctions. Buying house at a probate auction I think is a gamble just like any auction does. That is why they let you inspect or check the house for one hour before the auction begins. You have the time to check if the house needs drastic repairs. Maybe a structural engineer can be of help in these kind of inspections. Thank you for this information.

  6. SirenOnFire

    There really are significant risks when opting to buy a house through auctions. Although sometimes, you can indeed save a bit than buying somewhere else, there’s the uncertainty of the real condition of the house. There could be quite a lot of repairs that has to be done that could be way over your budget. Although I have not tried buying anything from an auction before, buying a house through this may not be a possibility for me. One major reason is that this kind of decision is really important and very big to gamble over the possible uncertainties you could face, not to mention the long “To Do List” before you eventually get that house.

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