Should you buy a house at auction?
Are you looking to buy a property? You don’t have to limit yourself to traditional real estate listing search channels and working with real estate agents. You can also purchase a property at auction.
Should you buy a house at auction?
What you need to know
- Buying a house at auction is more risky than buying through the usual process. It is vital that you are well educated about how real estate auctions work.
You can find home auctions through local governments, real estate agents and online sites like RealtyTrac and Auction.com. to visualize your personal interior.
If you can’t afford to buy a property in poor condition, stick to auctions that allow you to inspect the property before the auction.
Check and understand all bidding rules and do your due diligence on any property that interests you – for example, checking applications, credit rights and occupants – before bidding for it.
Pros and cons of auctions
The advantages of buying at auction include expanding options and possibly buying at a discount.
You may face less competition to buy a property compared to buying the traditional way, but you will also be dealing with a different group of potential buyers – often experienced investors.
Perhaps the biggest risk of buying at auction is that you will have limited knowledge about the properties for sale, making a wrong move a very real possibility. And, as with any real estate purchase, you will need to read, understand, and sign a lot of documents (ideally, with the help of a real estate attorney).
Real estate is rich with stories about homes bought at auction well below market value, and such negotiations exist. However, auctions are generally a riskier way to buy property than to buy through the ordinary process. This reality makes it vital to be well educated about how real estate auctions work and be careful about the properties you consider bidding.
“Many people incorrectly believe that auction houses are a good deal,” says John Myers, a real estate agent and qualified broker with Myers & Myers Real Estate in Albuquerque, NM. “Some auction houses are a good deal, and others can be a big mistake. ”
To help you avoid making a big mistake, this article will explain the basics of residential property auctions, so you can decide if this option might work for you – whether you want to live in the property or just use it. as an investment.
Exclusion properties
When a homeowner has not paid their mortgage for at least a few months, they can default and end up in foreclosure. When this happens, the bank submits a non-charge notification to the county registrar. If the homeowner does not pay the balance due – or renegotiates the mortgage with the creditor – the creditor can put the house up for auction and oblige the homeowner to pay the default. These closure tenders are held by trustees hired by banks.
Property tax
Another way in which a house ends up on the auction block is when the owner does not pay the assessed property taxes. In these cases, it is the unpaid tax authority, rather than the bank, that confiscates the property. The resulting tax guarantee auction is conducted by a local sheriff, an official or by the county or local authority authority office.
Participation in the auction
Regardless of the type of auction, these events can take place in physical locations, such as local administration rooms and hotel conference rooms,
and these in-person auctions are completed quickly. Also, real estate auctions are taking place more and more online, and online auctions can take days or weeks.
Buying homes at auction has been and will continue to be popular, according to Earl White, co-founder of House Heroes LLC, a Florida real estate investment firm that buys vacant homes, apartments and residential land.
“Budget owners and real estate professionals are migrating to sources where there is less competition,” he says. “Of course, auction properties generate fewer bids, which leads to a lower selling price.
“However, foreclosure auctions do not offer discounts that existed during the crisis,” White continues,
explaining that when fewer properties are available, buyers are highly motivated
by the appreciation of the house and favorable mortgage rates, and online auctions have grown.
competition and rising prices.
Finding real estate auctions
One way to find auctions is to contact local governments directly or visit websites for information, then follow up by phone to confirm details. Another is through sites like RealtyTrac and Auction.com. However, online information is not always accurate.
Properties can be listed, which are pre-foreclosed because the owner is behind for payments. These properties may never be put up for sale, as their owners make payments or reach an agreement with creditors.
Local real estate agents and brokers can also be valuable resources. But you may not find them willing to help, because agents and brokers do not automatically earn commissions for live auctions. However, these real estate agents can earn commissions through online auctions.
Multiple listing service data
Multiple listing (MLS) reports are much more valuable to potential buyers than online listings, according to White, because they contain complete listing data, including photos and, most importantly, comments from the non-public broker. “Comments that are not public are important because they specify critical information that affects the sale price and market days. For example, property defects, financing options, occupancy and tenant rents.”
The best way to evaluate an auction property is to work with real estate agents, appraisers, contractors and others who understand the costs of construction and remodeling and can accurately estimate the value of the property and the cost of the work it needs.
While the rules differ by location, MLS and county registrations are often only available to real estate licensees, White says. In his experience, they are usually happy to help for free if you contact them.
White also notes that in-person auctions have disappeared, as smaller counties have converted their in-person auctions to online ones. Miami and Palm Beach are two locations where both tax and closing auctions are now fully online.
Keep in mind that job closing tenders are often postponed or canceled, even at the last minute. The borrower may not have obtained all the documents he needs or the borrower may have developed a solution to avoid exclusion.
What bidders need to know real estate auction
Before bidding on a real estate auction, you need to understand the risk you are taking. A bad purchase could haunt you for years. You must also understand the rules of the auction and be prepared to follow them before attempting to participate.
You will need to register and deposit a refundable deposit of between 5% and 10% of the expected sale price of the property to the entity holding the auction. If the auction happens in person, be sure to check at least one hour before the scheduled start and get the official card that you will pick up when you are ready to bid.
Winning a property at auction can work in two different ways.
- In a creditor confirmation auction, the creditor does not have to accept your bid even if you are the largest bidder. In an absolute auction, the winning bid receives the property.
The starting price of the auction can be the balance due for the mortgage or a smaller amount intended to stimulate bids. In a closing auction, the creditor is not allowed to take advantage of the auction. Often, these properties are sold at a loss; If there is a profit, it is assumed that it will go to the closed owner after the mortgage is granted and any other loans are paid. Auction properties are not always excellent bids – for example, the bidder may set a hidden reserve price on a property, which is the minimum to be offered.
“Whether a buyer is participating in the auction in person or online, they must keep in mind that there is a threshold price for each property in which a wise purchase can become a reckless purchase and must not allow their event, place or emotions. to change his mind, ”recommends Ron Humes, a real estate agent since 2000 and current VP of modern post-marketing operations in Lexington, Ky.
The problem of accessing a property
Auction properties rarely offer potential buyers the same level of access as traditionally sold properties. You probably won’t be able to walk around the property with your agent, although some auction companies offer open houses.
“I personally would never recommend a client to buy a property remotely without first doing the eyeball test,” says David Roberson, a lawyer and real estate broker in San Jose, Calif. He and his wife also own 22 rental properties in three states. is the owner and operator of Silicon Valley Property Management Group. Either you or your trusted investment team need to thoroughly evaluate both the real estate you are considering and the people you are dealing with before you are legally or financially obligated.
Similarly, Humes warns that sources that report the current or future value of a property can be very inaccurate, unless there has been an on-site appraisal by professionals who know how to gather and evaluate all the necessary details.
The best way to evaluate an auction property is to work with professionals – real estate agents, appraisers and contractors – who understand the costs of construction and remodeling and who can accurately assess the current and future value of the property and the cost of the work it has. need.
Property condition and inspections
The house could have all sorts of problems – remember, this was a house that belonged to someone
who couldn’t afford a mortgage or property taxes, so they probably couldn’t afford any routine maintenance or repairs.
In addition, once this landlord has realized that they will lose their home, they may have intentionally
neglected it or even severely damaged it. Also, properties that were vacant could have been vandalized or had glasses.
We assume that if the property looks awful on the outside, it probably looks awful on the inside as well. The auction properties are sold as is and you will need to be able to afford any repairs. The test may be, you should not be fooled to get a better idea of the condition of the property.
You may have seen pinball machines doing this on TV – going into the yard, glancing or even going
up through the windows – but it’s not legal.
And you certainly don’t want to disturb anyone who occupies the house, not only out of kindness,
but also for your own safety. Look for information about the property’s property history from local government records,
talk to local real estate agents, and ask for respectful respect from neighbors.
Auction properties often do not allow a home inspection or any legal way to view personal interior. If you can’t afford to buy a property in poor conditions,
stick to auctions that allow you to inspect the property before bidding. Without this information,
it can be difficult to know what you are getting into, what will be the repair costs of a property or
its real value until after you become the owner.
Even if you can get a home inspection, any inspection has its limits. The problems behind the walls, ceilings and floors may not be obvious until you take possession. If utilities are turned off, you may not be able
to detect leaks, electrical problems, faulty appliances, or malfunctioning HVAC equipment.
Payment options: Plan ahead
Buying a property at auction usually requires a lot of money. Each bidding company and county government has its own payment requirements,
but you will probably need cash just to secure your right to bid. Advance amounts and purchase methods often depend on the property and the auction house.
More flexible financing options may be available by purchasing a property traditionally owned by
a bank: auctions are not the only way to buy foreclosures.
With regard to payment, bidders at an auction should bring cash, a money order or a cashier’s check
for the amount requested by the auctioneer.
You will usually have to pay the property in full immediately after winning the auction. Occasionally, you may have to pay by the next day. Failure to pay may result in the loss of the deposit and a ban on future auctions.
Be prepared to provide proof of funds to show that you can complete the purchase. If you are
bidding as an entity, such as an LLC, a trust, or a limited partnership, instead of an individual,
you may need to submit your entity documents.
The winners go through the escrow and close as they would any other purchase of the house. Real estate bidders are often real estate investors who can afford to pay cash. For auctions that allow funded purchases, you will need to be pre-qualified ahead of time.
Some auction houses prefer to work with their affiliated creditors and will have these creditors on site at the auction.
However, do your research in advance to determine the interest rates available from competing creditors. This information can give you an effect.
Also, make sure you understand the auction fees you will need to cover. “Homes purchased
at auctions often have costs and fees from bidders, banks, lawyers and other companies that
have to bring the property up for auction,” Humes said.
“It is not uncommon to find 10% auction fees, bank interest and penalties, lawyer’s fees,
12% sales commissions, property preparation fees and the like, which are passed on to the buyer.”
Check for complaints, licenses and occupants
Before bidding, you’ll want to hire a title search company to see who might hold loans against the property. If you earn it, you will become responsible for any loan, which means more money out of pocket.
There may be other claims against the home – not just tax credits, but contract loans or a second mortgage.
Bidders should contact the auction company to ensure that the property has a clear title.
If you win an auction, you’ll want to purchase title insurance within escrow or immediately after
closing, to protect yourself against any uncovered credit while searching for the title.
Also, in some cases, the (former) owner or a squatter will occupy the property, which means you will have to evacuate them –
a process that can be the most unpleasant and long and expensive in the worst case. To simplify the process, you may want to give them a few thousand dollars up front to move and hand over the keys.
Refrain from doing anything until you hold the title. Avoid the desire to start renovations or move into ownership immediately after obtaining the certificate of sale.
However, you will have to wait up to 10 days to receive the certificate of title. The property is not really yours until you have that certificate; the homeowner could still retain his right to the home by objecting to the sale or paying the loan.
Bottom line (auction)
Closed houses can be financially attractive, but there are many obstacles to consider before buying.
Also, just because a house is up for auction doesn’t mean you’ll be able
to get it at a good price (or that the house is a good deal at any price – it could be a pitfall).
But for smart, smart and motivated people, property auctions are
worth exploring as a way to build a cheap house or investment property.
That being said, consider properties that are not bidding as an alternative.
“It may be possible to find a better deal when negotiating with a seller who has
equity in a property and can negotiate on their own without all the penalties and affiliate fees of the auction,
” recommends Humes. “You may also have more competition in auctions from companies that buy properties to place as a business model. Auctions are not always the best offer for the average buyer.”
If you are interested in trying to raise a bargain property at auction, there is a lot to learn. Auctions are a riskier way to buy a property than through a real estate agent.
It is important to be extremely well educated about the process and about
the properties you are interested in bidding on.
Working with a local real estate agent or broker to identify potential properties can help,
although they may not be interested unless you can reach a compensation agreement.
Lastly, make sure you carefully consider all of the bidding rules and
do your due diligence on the property before bidding.
Look for a real estate attorney’s lawyer – ideally one experienced in foreclosure sales – to make sure
you understand what your responsibilities and obligations will be if you are the winning bidder.
