Conducting due diligence, or doing your research, is one of the most important steps you can take before buying a property. It is even more crucial when bidding on a distressed bank-owned or foreclosure property. Here are the most vital steps to take before placing a bid.
To begin, review the property details page. It contains valuable information for due diligence, such as photos, property information reports, title insurance information, tax information, the purchase agreement, addendums and more.
Investigate the Property and Surrounding Neighborhood
- If the property is vacant and interior inspections are available you can hire a home inspector to assess it. You can ask an agent to recommend an inspector or you can find one through a national association such as: ASHI and InterNACHI.
- Many homes on AuctionDealsToday.com are occupied by former owners or tenants so you will not be able to access the property. If this is the case, the property details page will have an icon beneath the bid box that says “Do Not Disturb Occupant.” But there are still ways to investigate to ensure you’re making the right investment. You can drive by and take photos of the outside of the home and check out the neighborhood. Do not disturb the occupants or trespass on the property.
- If the occupants are tenants, it may be possible to continue to rent to them. But if you want to flip the property or live in it yourself, you may want to research eviction laws – just so you are informed in case you need to go that route.
Review Documents on AuctionDealsToday.com
- We provide information and documents on each of our property details pages. This may include a property information report, title report, purchase agreement and addendums. Additionally, we provide auction details, which may include the Buy It Now Price, Reserve Price, previously valued price and other information.
- Downloadable documents can be found on the property details page. Please note that these reports are intended to provide preliminary information only, which is why we recommend obtaining a full title report.
- To purchase a full title report, contact a closing company. A real estate agent can also recommend a closing company. A full title report will show you exactly what’s on the title and will indicate if there are any liens for items like unpaid taxes or homeowner association dues. This is important to know before you place a bid.
- Most properties are sold on a “Cash Only” or “As-is” basis. This is because many lenders are not willing to provide mortgages on occupied properties since the interior cannot be inspected. If you find a property that is financeable, you will need to provide your loan pre-approval letter. Check the property details page to find out if the property you are interested in is financeable or requires an all-cash purchase.
- Regardless of whether you finance or buy with cash, you will need to show Proof of Funds within 24 hours of winning the bid. If you finance, your Proof of Funds must be enough to cover both your Earnest Money Deposit and down payment. Proof of funds include bank statements, brokerage accounts, a line of credit or any funds that are immediately available.
- You may also want to request a liability insurance quote. Check with your insurance agent to find out how much liability and property insurance you may need.
To ensure that you are prepared to bid, here’s a checklist of additional due diligence steps. Or, you may want to consult a local real estate attorney to identify other things to take into account when performing due diligence.
Review Purchase Agreement and Addendum
It’s important to review the purchase agreement prior to bidding to ensure that you are informed about the unique terms of the agreement for the property that you would like to bid on. The agreement is located at the bottom of the properties detail page within the “Documents” tab. The seller dictates the terms of the agreement, which varies per property. The agreement explains your rights as a buyer, along with the seller’s rights. It may include items such as:
- Access to the property, if allowed
- Financing conditions, if permitted
- Buyer’s Premium, if applicable
- Closing fees and which party pays for them
- Title insurance and deed options
You may want to review the agreement with a real estate agent or attorney. It is crucial that you are clear about the terms of the agreement prior to bidding because if you become the winning bidder, you will be required to complete and sign the agreement within 1 business day of receipt.
Real Estate Purchase Addendum
Most properties have a real estate addendum. We strongly recommend reviewing it before the start of the auction. The addendum is part of the purchase agreement so you will be legally bound to comply with it. Similar to the purchase agreement, it’s located at the bottom of the properties detail page, under the “Documents” tab.
Buy Under a Separate Entity
If you plan to buy a property under a separate entity, you need to be prepared to provide the documents for that entity if you win the auction. Learn more about Buying Under a Separate Entity.