How to Buy a House at a Real Estate Auction
While many people go the traditional route of buying a house by home-shopping for months—using a real estate agent and negotiating with a seller—some people instead choose to buy their home at a real estate auction.
While it’s not for everyone, many people are intrigued by the possibility of nabbing thewinning bid on a good property for a cheap price.
What is a Real Estate Auction?
A real estate auction is a public sale of properties. In the past, acquiring properties through auctions was generally limited to real estate investors and professionals, but that’s no longer the case.
Common reasons for auctioned houses include the following:
The house has been foreclosed on
The bank re-possessed the home and wants to sell it in order to recover the money it originally lent.
The original homeowner owed the government enough money for it to reclaim and sell the house.
How to Find Them
Newspaper ads and online searches are good places to start. Check with your REALTOR® and local auction houses to find out when property auctions are planned. Auctions can be held at local courthouses, conference centers or at the auction company’s office. They can also be conducted online.
Types
There are three main types of property auctions:
A reserve auction—when the lender can reject your offer even if you are the highest bidder (the reserve price is not made known)
An absolute auction—where the highest bidder automatically wins the property
A minimum-bid auction—where the bidding begins at a specified price
The starting price of a property might be the balance remaining on the mortgage, or possibly a lower amount just to get bidders interested. In a foreclosure auction, the lender cannot profit from the auction, and these properties are often sold at less than market value.
Payment
Buyers planning to bid for a property should be prepared to pay for the property at the auction, so come with a cashier’s check for the specified amount of money the auction holder requires to complete the purchase. If the auction allows financing, become pre-qualified before you start bidding. Auction winners must go through a property closingjust like a traditional real estate transaction. There will also be auction fees.
Bidders Beware
Keep in mind many properties are at auction because the homeowner had financial troubles. There can be serious maintenance issues with the home needing to be addressed before it may even be live-in ready, and even move-in ready homes at auction can be quite outdated on the inside. Some properties may not allow tours before the auction is sold. This is usually because the current tenant forbids it, and an angry tenant could decide to trash or gut the place before moving out after the sale.
Before bidding, be sure to check for any liens against the home. Work with the auction company and research the home’s title as thoroughly as possible before bidding. Above all, be sure you can pay for it. If you withdraw a winning bid, you will face steep penalties.
