Want to buy a home from an Auction: Read this first!
Home buyers often ask is how do real estate auctions work? Buying a home at auction offers an exciting alternative to the traditional route – one that can be perfect for those who want to invest in real estate.
With both live auctions and online auctions, the opportunities for finding a promising investment have never been better.
Without a doubt, most people conjure up images in their mind of getting the deal of the century at an auction. While there is certainly the possibility of that happening, it is not always the case.
Of course, there is also the possibility of making a significant investment mistake, so it is essential to make sure you are prepared for the auction process.
Fortunately, it is easy to learn and approachable for just about anyone, as long as you move carefully and seek knowledgeable guidance when you need it.
The possibility of finding a solid long-term real estate investment at an auction is pretty good.
Be sure, however, that before jumping in you have a handle on how the auction process works.
The vast majority of homes sold at auction are foreclosures. Lenders want to get as much as they can for homes that borrowers have defaulted on, and auctions offer a convenient way to accomplish this goal.
They also offer careful investors opportunities to find great deals. Purchasing a home at auction, however, should come with quite a bit of due diligence. If you are considering buying a home at auction, there are a few things you should be aware of:
Although online auctions are increasing in popularity, live auctions are still very much a thing. Typically held in the county courthouse – although they can be held at any public location, like a hotel ballroom – live auctions require you to show up in person to make your bid. Quite often real estate auctions also take place right on the property.
They are open to anyone interested in attending, although you will need to register if you want to make a bid on a property. You will also need to demonstrate to the auction that you have the financial means to purchase a home – the full purchase price – before you can bid.
If you want to attend a live auction, make sure you:
Research the auction before visiting. Each auction will have its own set of rules and requirements that you need to adhere to. Although it is perfectly fine to just show up to live auction to check it out if you are planning on bidding you will need to complete a registration, which will include submitting financial documents. Real Estate auctions quite often are publicized in your local newspaper on multiple occasions.
Search for properties before you go to an auction. Finding the best deals is going to require going to different auctions. You can search foreclosure data for the area that you are interested in and determine which auction will be selling the property that you want.
A local Realtor can help with this process, although be aware that the agent is not allowed to make a commission on a live auction sale.
Some of the best resources for finding properties going to auction can found on sites like RealtyTrac. Foreclosure sales data sometimes is also available from the specific county either online or at the county courthouse, or from a third-party foreclosure sales agent, known as a “trustee.”
Zillow, unfortunately, publishes information through RealtyTrac on their website showing homes for sale when they are not. Most of these properties the owner has missed a couple of mortgage payments. Zillow treat’s these properties as if they have already been foreclosed on which is not the case.
Quite often the owner catches back up on their mortgage payments, and nothing ever happens with the property. It can be very misleading to consumers. You can learn more here about why some homes posted for sale on Zillow are not actually for sale.
Check out the property for yourself. You can’t go into a foreclosure property most of the time because they tend to be occupied. However, you can do a drive-by to get an idea of the state of the home.
Experienced investors will tell you that you can determine a lot about the state of a property by the way it looks on the outside. If it looks good, it probably is nice enough inside. If it looks terrible, it probably looks the same inside. Keep in mind you will be buying the home in as is condition.
Unlike a standard Real Estate transaction, everything is “buyer beware”. When buying a traditional non foreclosed property, the owner probably will have had some kind of history with the home. He or she might even let you in on any known issues. In a foreclosure, the lender has never occupied the property so more often than not they know very little about the structure and potential problems that may be lurking.
In many instances, the person being foreclosed on has lost their home because of financial difficulties and has not had the money to keep up with general maintenance.
There could be substantial issues with the house that are not readily apparent. It’s possible some of the more expensive components of a home such as plumbing, heating and electrical systems have damage.
I have witnessed plenty of foreclosed homes where the owner has taken out their anger on the property. I’ve been in a few foreclosures where the entire kitchen was removed! Vandals have also been known to strip entire homes of their copper plumbing.
Keep in mind disclosing the condition of a property and it’s know defects is not something the auctioneer or lender will be doing.
Nobody wants to find out the home they just bought at an auction is a real lemon!
Find out everything you can about the property. You can learn just about everything you need to know about a house before you buy it – you just have to put in the time and effort to do so. Learn about the estimated market value, the money owed by the borrower and any other pertinent facts.
Any liens could become your responsibility if you buy the home so it would be a good idea to have an attorney look into the possibility of liens before you bid.