Ever thought about getting a property via auction? Well it isn’t impossible, but it is very hard for regular buyers. Auctions take place at local government courthouses and other locations chosen by auction companies, such as hotel conference rooms. Homes are also auctioned online. Foreclosure auctions are held by bank-hired trustees. Tax lien auctions are conducted by local sheriffs. There are two types of property auctions. In a subject to lender confirmation auction, the lender doesn’t have to accept your offer even if you are the highest bidder. In an absolute auction, the winning bid gets the property.
How much are the homes auctioned for? The starting price of the auction may be the balance remaining on the mortgage, or may be a lower amount designed to spur bidding. In the case of a foreclosure auction, the lender is not allowed to profit from the auction. Often, these properties are sold at a loss, but if there is a profit, it is supposed to go the homeowner after the mortgage and any other liens are paid. How do you know what kind of property you are getting though? Some auction companies have open houses so potential bidders can walk through the properties ahead of time. Listings describing the properties to be auctioned are also available. These allow people to determine in advance which properties they wish to bid on and the maximum price they are willing to pay. Other times it is only possible to drive by and see the outside. To discover properties that will be auctioned off, potential buyers can check county recorder websites and foreclosure listing services.
Paying for a property you won isn’t that tricky. Bidders should bring a cashier’s check for the amount of money required by the auction holder. Winning bidders will pay any auction fees and/or bidding fees and put down an earnest money deposit on the property they are purchasing before leaving the auction site. The winners then go through escrow and closing just like with any other purchase. Bidders at property auctions are often real estate investors who can afford to pay cash, but for auctions that allow financing, it is best to get prequalified ahead of time. Some auction houses prefer that you work with their affiliated lenders and will have those lenders on site at the auction. (The best real estate investors all share these traits and practices.
Are there drawbacks to buying a home at auction? Yes there are. Properties being auctioned off aren’t usually nice homes. If a property winds up at auction, it means the owner was having financial trouble, so the house may have deferred maintenance problems. It might even be completely trashed. Also, because of the financial situation the previous owner was in, there may be other liens against the home, like tax liens, contractor liens, or a second mortgage. Buying a property at auction almost always requires a lot of cash. Each auction company/county government has its own requirements for payment. You will need some amount of cash no matter what just to secure your bid. Even if you win the auction, in some cases, you will not be allowed to purchase the property. The bank doesn’t have to accept the winning bid in subject to lender confirmation foreclosure auction. Also, in some cases, the former owner or a squatter will be occupying the property, meaning you will have to evict them which is a process that can be unpleasant at best, long, and expensive.