What Does Buying A House At Auction Entail?
Going once, going twice, SOLD! Have you ever thought about how to buy a home at auction? Wondered how hard or how easy it is? Contemplating if you can get a steal of a deal through an auction? Well, here’s a few fast facts about what buying a house at auction entails.
Although the vast majority of all homes are sold through the traditional channels of real estate agents and multiple listing services, there are some that fall through the cracks and are sold at auction. The homes that are being sold at auction are most likely foreclosures. A home can go into foreclosure for many reasons but the underlying issue is missed payments. Once a mortgage goes into the default, the lien holder files a notice of default with the county recorder. After a defined period of time, the bank will appoint a trustee to publicly promote an auction to allow for the bank to officially take ownership of the property.
So the first step of purchasing a home at auction is to research and find properties that are going up for auction. It’s traditionally required for there to be notice of the auctions but it may not be advertised using conventional methods. Homes.com has a wealth of homes for sale but foreclosure options may be deeply hidden in local newspapers. Some extra digging around and you’ll find trustee sales. The advertisements will typically include the property address, most current principal balance, and the time/place of where the auction will take place. The opening bid may or may not be shared. Often times, the opening bid is the lien holders owed balance. However, sometimes the bank may auction it off at a discounted price and take a loss without taking possession. Buying a home at auction starts with doing this research, tracking your results, and possible observing several auctions beforehand to learn the process.
Each auction can be slightly different so be sure to read and learn about all policies. Most all auctions will require a cashier’s check paid on the spot. The check amount is likely going to be a large percentage of down payment (perhaps 20%) and can also include certain auction fees and other expenses. Since it’s an auction you may not know the exact amount needed so the cashier’s check will likely need to have some cushion built into it. Viewing some preliminary auctions will help you learn the ropes.
Another item that needs to be researched is when complete payment is due. Some auctions may need full payment at auction, some may require full payment within an accelerated time-frame, and some may be a more traditional contract-to-closing timeline. The deadlines will likely dictate the financing terms. An “all cash,” purchase is the most common transaction due to the nature of auction requirements. If a financed offer is possible it will be critical to have all your pre qualifications met BEFORE the auction. Going above and beyond getting your ducks in a row will make for a smooth deal.
The appeal of buying a home at auction is the possibility of scooping up an amazing deal on a home before anyone gets a chance to at public market. However, there are some downsides to be aware of. One is that you may not be able to actually view the inside of the property (only driving by). Unless the property is listed on MLS, it is not appropriate to trespass or disturb the occupant. Since most auctions are foreclosures, the assumption would be financial difficulties. Which means the home come be riddled with deferred maintenance or left trashed. In a similar vein there will likely be no opportunity for inspections after bid agreement. One last thing that is risky is the possibility of other lien holders or owed expenses.
Buying a home at auction is not for the faint of heart. It’s a less conventional method of purchasing for a reason. You need to do some extra work to find the properties and research the properties. You’ll likely need a large cashier’s check on the spot! You’ll likely need to be in a position to CLOSE quickly. And, the condition of the property may be uncertain. Big risk can equal big reward so keep digging in and see what the right purchase method is for you. Another money saving opportunity may be a short sale.
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Happy house hunting!