A Complete Guide to Buying a House at Auction

Buying a house at auction can be a great opportunity to purchase real estate at a discount, but it’s not without risk. Homes are often sold at auction after they have been taken back through foreclosure. This happens when the owner is behind on their taxes, homeowners association fees or their mortgage.

Real estate auctions are held so the foreclosing institution can recover the debts owed to them.

Foreclosure auctions are the most common type of real estate auction. This is where a bank or lending institution forecloses on a borrower after they stop paying their mortgage. Foreclosure auctions are conducted by the local court or sheriff's office, depending on the state or county where the property is located.

Homeowners associations (HOAs), the IRS and local taxing authorities can also foreclose on a property owner for failing to pay their HOA fees, property taxes or income tax. When this happens, the taxing authority or HOA goes through the same legal process by selling the assets at a tax deed sale or auction.

The type of auction you attend depends on the municipality, state and entity.

In an absolute auction, no minimum amount is required to win the auction. Each bidder must bid higher than the last until no further offers are made and the highest bidder wins.

This can work to the buyer’s advantage because the auction can start and end at any price. However, it’s rare to have no competition at an absolute auction. In fact, these types of auctions receive the highest response from bidders, with winning bids that can go beyond the property's value sometimes.

A minimum bid auction starts with the lowest purchase price that the institution will accept to sell at auction. It is normally the total debt owed plus interest, attorneys fees, auction fees and other fees from the foreclosure process.

A minimum bid auction only sells to a bidder if they meet or exceed the minimum bid. If no one bids at or above that number, it is “sold” to the institution and becomes a real estate owned (REO) property.

With a reserve auction, the seller typically has a minimum bid requirement, but that amount is not shared with buyers because they hope to earn a higher sales price at auction. The institution can accept or reject the offer, but they will not counter the offer as with a typical real estate transaction.

One of the easiest ways to find real estate auctions is to look at homes for sale on Homes.com. You can filter the results for multiple listing types, including auctions, foreclosures and short sales.

Online auctions are what you’re most likely to encounter. Bids are made electronically and the auction is usually completed in a few minutes or reviewed over a few days. Some smaller municipalities still hold auctions in person at the courthouse, although this is rare.

Occasionally, institutions will have live streaming auctions where bidders must pre-register and physically appear on the live stream to place their bids with a virtual, certified auctioneer.

Buying a house at an auction isn’t like buying a home on the traditional market. “Definitely do your due diligence in advance,” says Robert Arnold, the owner and broker of Sand Dollar Realty in Altamonte Springs, Florida.

Before bidding at real estate auctions confirm and research:

• Condition of the property
• Occupancy of the property
• Estimated value as-is and if repaired
• Lien position of the foreclosing party
• Other liens or fees that could survive the foreclosure auction
• Unpaid property taxes

Auction properties are sold in as-is condition and may be occupied by the homeowner or a tenant. It’s unlikely that you can get inside to inspect the interior before bidding. Arnold recommends at least driving by the property to assess its potential condition. 

Your limited access to the property will make it hard to determine the current value and the repairs needed. Try to value the property based on its assumed condition and have a budget for potential repairs. This can be done by looking at comparable properties (comps) in the immediate area that are similar in size, style and condition. The comps that you see and the estimated cost of repairs should determine your maximum bid.

If the property is occupied you may have to evict after the foreclosure to gain rightful possession. This can add to your cost and timeline.

The title is conveyed as-is when buying a house at auction. “If there is a title problem or a senior lien, the buyer will have to deal with it after the auction,” says Arnold.

Certain liens can outlive a foreclosure and complicate a future sale. For example, IRS liens or federal liens might be attached to the property. Unpaid taxes, HOA liens, municipal code violations or past-due utilities will also convey with the property and can be costly for the new owner.

“I have known several people who bought a property at auction only to find out that the foreclosure was of a second mortgage or homeowner association and there was still a big first mortgage on the title,” Arnold says. “It can become a major bad investment if you do not do your due diligence thoroughly before buying at a foreclosure auction.”

You can order a title search on each property you plan to bid on, but that can get expensive. It’s best to learn how to do your due diligence yourself.

Confirm the lien position, understanding if the foreclosure is due to a first-mortgage lender, a second-mortgage lender or a taxing authority. Public records will list any liens, including IRS, HOA and federal liens that could outlive a foreclosure.

You can check tax records online in most counties to see if they are current or how much is owed. Call local municipalities like the water and electric companies to see if any debts are owed, too. It’s also a good idea to call the code violation department. Sometimes, violations are accumulating fees but haven’t been publicly recorded yet.

Since every county and institution sets its own rules, any bidder should ensure that they fully understand the auction terms and conditions, as well as state foreclosure laws. This includes how quickly the money needs to be paid in full to secure the bid. If you are unsure about any term or condition, contact an attorney.

Foreclosure auctions don’t allow for traditional financing since the funds must be paid within a day or two from the auction date. If a buyer does not have cash, they can try to secure a hard money loan, which is an asset-backed, short-term loan from a private company.

Most auctions have a short time frame to send money to the courthouse. “In Florida, the deadline to pay 100% of the auction proceeds is within 24 hours,” says Arnold. “So, all the money has to be paid at the courthouse in certified funds within just a few hours of being the winning bid.”

Make sure you add the cost to repair the home if needed and account for closing costs and auction fees as a part of the financing amount. Real estate auctions can have fees ranging from 1.5% to 5% of the winning bid. There are also transfer taxes and recording document fees to pay for.

After your funds are in order and you’ve determined the maximum bid you’re willing to make, prepare to attend the auction.

Plan to register on the auction site at least a week or two beforehand. Most sites will take several days to approve you as a bidder, so it’s good to review the process, bidding strategy and etiquette.

The name you register with will be how the property is vested at the sale if you are the winning bidder. Review the registration carefully for errors and consult with an attorney, who can advise if purchasing as an LLC or other entity would be better than buying in your name.

Some counties may require a payment to participate as a bidder before the auction begins. For example, San Diego County, California, requires a $35 non-refundable fee to be paid before the auction in addition to a $1,000 refundable deposit. Pinellas County, Florida, requires a 5% deposit based on the highest amount you believe you’ll offer.

Auctions have a specific start time. Login beforehand and be ready to follow the bidding etiquette for that particular site.

If it’s an open auction, bids will be publicly shown so you can see the highest amount. If it’s a blind auction, other bids will not be shown, so the best strategy is to place an aggressive offer that doesn’t exceed your maximum bid.

Don’t let your emotions drive your bidding strategy. You’ll want to avoid getting caught up in the auction process and bidding over budget or more than the property is worth.

If you make the winning bid, you’ll need to secure your position with the selling institution. Some counties will automatically credit your initial deposit to hold your spot.

Most counties require the full amount to be paid within 24 to 72 hours by cash, cashier's check, money order, certified check, official bank check, government-issued check, or with a trust account check if an attorney delivers it. 

The county will begin with title transfer and recording the required documents after the full purchase price is received. This can take a few days to a few weeks, depending on the county. 

Challenges can still arise even if there aren’t issues with closing and payment. Depending on the state, homeowners have a right of redemption after a foreclosure sale. This means that they can take the property back if they can pay the amount in full. It’s rare to see this happen, but it is something to understand before bidding.

After closing you are responsible for paying property taxes and will be taxed for capital gains on the sale of the property in the future.

If you aren’t interested in bidding on a property at auction, you can view foreclosed properties on Homes.com and buy them with the help of a real estate agent. 

Sites like Auction.com, Fannie Mae and Freddie Mac also have REO properties for sale after they’ve gone through auction.

If your goal is to purchase a house as a primary or secondary residence, buying at a foreclosure auction likely isn’t the best option. It’s a complicated process and potential risks aren’t well suited for the average homebuyer.

It’s more common to see real estate investors buying homes at auctions. This is because they are typically confident in conducting due diligence, valuing properties and making repairs if needed.

How do I find auction properties in my area? You can find auction houses in your area by looking at homes for sale on Homes.com. From there, you can filter the results by listing type, including auctions.

Can I finance a property purchased at auction? Most counties require funds to be deposited immediately or within 24 to 72 hours from the auction date. For that reason, buying an auction property with traditional financing isn’t usually an option. However, you can secure a hard money loan beforehand if you don’t have the cash on hand.

What are the potential risks of buying a house at auction? The inability to access and properly assess the condition is one of the biggest risks. This makes it hard to properly value the home and know what to bid. Title issues, including surviving liens and unpaid taxes and other fees, must be paid after closing. If the property is occupied you may have to evict to gain right of possession.

How long does the closing process typically take for an auction property? The closing process can take as little as a few days, but it takes a few weeks in most counties.