Buyers Beware
I wrote a story for the magazine last week about the surprisingly low prices I saw at an auction of foreclosed property in Los Angeles. One home that had sold two years ago for $887,000, went for $285,000 for example.
I had a nice chat before the article was published with Celeste Hammond, a professor of real estate law at John Marshall Law School in Chicago. She reviewed a sales contract from another auction company, although I believe the terms are much the same. Hammond said it was an incredibly one-sided contract, written entirely in favor of the sellers.
Among other things, there were no contingencies for inspections or financing. If you discovered the home was structurally unsound after you were the high bidder and backed out, you could lose your deposit. Same was true if you brought your own financing to the deal and it fell through.
Hammond said these auctions were really for professional investors only. Given the deals that were being done—properties were trading for about 60% of their most recent asking price—I’d hate to think no one else should bid. But buyers definitely need to do their homework.