There’s more than one way to buy a house, and if you’re considering attending a foreclosure auction, you might be wondering exactly what you’re in for. In this brief guide, we’ll cover all the basics.
Find Local Listings
There are several sources you can use to find auction listings. The local government websites are a good starting point, but you can also check out real estate websites, MLS reports and even local newspapers.
If you’re only looking for homes sold at an auction, make sure to filter your results accordingly. Many online listing platforms will differentiate between pre-foreclosures, REOs (bank-owned properties) and actual auctions. The buying process will differ from case to case.
Research the Property
Once you’ve set your mind on a house, there are two things to bear in mind: the house will be sold as-is, and you won’t be legally allowed to visit it in advance. In rare cases, you can request a home inspection; however, these inspections have limitations.
The easiest way to assess the property’s condition is to visit and take a look at the exterior, searching for any signs of damage, squatting, etc. Avoid trespassing, even if the property appears vacant or abandoned.
It’s also essential to run a title search on the property. Contact the local tax assessor’s office or county clerk and gather as much documentation as you can. This will give you a better idea of what to expect, such as liens, violations, complaints, permits, as well as the year built, assessed value and so on.
Establish a Budget
Auction sales usually have the lien amount listed, and you can use it as a starting point for planning your budget. In general, the lien amount is the lowest amount that the lender is looking to recuperate.
Look up what other properties are worth in the area and run some comparable sales searches to get an idea of the median property value. Also, make sure to also factor in additional costs such as auction fees, attorney fees, bank penalties and interests and so on.
When drawing up a budget, bear in mind that most properties bought at an auction are paid for in cash. Also, it’s very rare that you’ll be able to take out a mortgage to finance an auction property. When auctions do allow financed purchases, you’ll need to be prequalified, often with the auction house’s lender.
Attending the Auction
Auctions usually take place outside the local county courthouse. Try to get there early so that you have time to find a parking spot, register to bid or confirm whether the property you’re interested in is still being auctioned. It’s not uncommon for the auction to be postponed on a certain home, and when this happens, it’s announced at the last moment.
The auction itself is very fast-paced, and the bidding is usually concluded in a matter of minutes. The referee will call out the property in question and set the starting bid at around the lien amount. From there, it’s a matter of outbidding the other attendees.
Winning the Auction
If you win the auction, you will be required to make some form of payment immediately. Depending on the state, you will need to either pay the total amount on the spot or pay a 5% or 10% deposit of your winning bid. Cash is preferred, but you can also provide a money order or check.
If you’ve only paid a deposit, you will then have between 2 to 6 weeks to pay off the outstanding balance. Check your local laws, as the required timeframe varies. If you fail to complete the payment, you forfeit your deposit. In some cases, you also risk being banned from future auctions.
After the Auction
Once the bidding is over and you’ve paid the required amount, you will receive a Trustee’s Deed of Sale, which acts as proof of ownership. The deed will then need to be recorded with the local county recorder’s office. You might also want to buy title insurance soon after to protect yourself from any liens not uncovered during the initial title search.
Apart from the paperwork, there are several other factors to keep in mind. Some states have ‘right of redemption’ laws in place, which allow borrowers to reclaim their home by paying the amount they owe even after the foreclosure sale. In some cases, you may have to deal with evicting the occupants before you can legally move in.
Buying a home at a foreclosure auction is different from a conventional home purchase. If this is your first time, talking to a lawyer and collaborating with a real estate agent can be of immense help. Also, it’s worth considering short sales and REO properties as an alternative.