Finding Real Estate Auctions
One way to find auctions is by contacting local governments directly or visiting their websites for information and then following up by phone to confirm the details. Another is through sites such as RealtyTrac.com and Auction.com. However, online information is not always accurate.
Properties may be listed that are in pre-foreclosure, because the owner is behind on payments. These properties may never go up for sale because their owners catch up on payments or come to an arrangement with their lenders.
Local real estate agents and brokers can also be valuable resources. Unfortunately, you may not find them eager to help, because agents and brokers do not automatically earn commissions on live auctions. However, these realtors can earn commissions through online auctions.
Youll Forgo Common Protections
In the vast majority of real estate transactions, home buyers are legally offered consumer protections, lenders are required to make disclosures, and real estate agents must advise you as they would advise themselves. In the auction situation, none of that applies. In addition to having little or no access to the home you wish to buy before you bid, you are responsible for doing your due diligence to make sure the title is held free and clear.
Of course, the mortgage lender, and probably the taxing authority, have liens in place, but you have to make sure there are no other liens, as in the case of a home equity loan in default or unpaid homeowners association fees. If there are, you will be responsible for paying those liens off when you acquire the title to the property.
Research The Property Auction Before Visiting
Each home auction will have its own set of rules and requirements that you need to adhere to. Although it is perfectly fine to show up to a live auction to check it out if you are planning on bidding, you will need to complete a registration, including submitting financial documents.
Houses at auction quite often are publicized in local newspapers on multiple occasions.
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How Do Houses End Up At Auction
There are many different reasons a home ends up at auction, but usually its because the homeowner started having financial problems. Most houses end up being sold at auction due to foreclosure and property tax default.
When a homeowner stops making payments on their mortgage, the lender has no choice but to foreclose on the property. And once the bank takes ownership of the home, its often sold at auction.
Multiple Listing Service Data
Direct multiple listing service reports are far more valuable to potential buyers than online listings, according to White, because they contain the full data for the listing, including photos and, most important, nonpublic broker comments. Non-public comments are important because they specify critical information impacting sale price and days-on-market, says White. This information can cover property defects, financing options, occupancy, and tenant leases.
The best way to assess an auction property is to work with real estate agents, appraisers, and contractors. These industry representatives understand construction and remodeling costs and can accurately estimate the propertys value and the cost of the work it may need.
While rules vary by location, MLS and county records are often only available to real estate licensees, according to White. In his experience, they are usually happy to help free of charge if you contact them.
White also notes that in-person auctions have been disappearing because even smaller counties have been moving them online. Miami and Palm Beach are two locations where both tax and foreclosure auctions are now fully online.
Keep in mind that foreclosure auctions are often postponed or canceled, even at the last minute. The lender might not have obtained all the paperwork it needs, or the borrower may have worked out a solution to avoid foreclosure.
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Why You Can Trust Bankrate
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. Weve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next.
Bankrate follows a strict editorial policy, so you can trust that were putting your interests first. All of our content is authored by highly qualified professionals and edited by subject matter experts, who ensure everything we publish is objective, accurate and trustworthy.
Our mortgage reporters and editors focus on the points consumers care about most the latest rates, the best lenders, navigating the homebuying process, refinancing your mortgage and more so you can feel confident when you make decisions as a homebuyer and a homeowner.
Find Out Everything You Can About The Property
You can learn just about everything you need to know about a house before you buy it you just have to put in the time and effort to do so. Learn about the estimated market value, the money owed by the borrower, and any other pertinent facts.
Any liens could become your responsibility if you buy the home, so it would be a good idea to have an attorney look into the possibility of liens before you bid. Houses at auction quite often have a myriad of problems associated with them.
You may even want to find out who owns the house and try to speak with them beforehand. If youre lucky, they will be in the mood to share some information with you.
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Understand The Fine Print
Because buying a house at auction is a fast-paced process, there wont be much time for questions or deliberating when the house you have your eye on comes up for bidding.
Consult with a legal expert who can check the terms and conditions of the sale contract, the professional building report, and all the due diligence documents, recommends Clark.
In short: Carefully review all available documents pertaining to the house in question and the terms of the auction. Further, be aware that there may be auction and transaction fees above and beyond the purchase price of the home.
Have A Real Estate Attorney Do A Title Search
You must hire an attorney to do a title search. By doing so, you will discover if there are any other liabilities on the property. You will want to do this research well before the auction date.
Any liens could become your responsibility if you buy the home. Things like unpaid property taxes, court judgments, or mechanic liens are all possible landmines. You could end up responsible for tax liens or back taxes if youre not careful.
Having unpaid taxes is not uncommon at all when buying a home at auction.
The faster you evaluate the legal status of the property you are interested in, the better, as this will help determine if it is worth it to put in an offer.
The last thing you want to discover is you just bought a home for $400,000 but then find out there is $100,000 worth of liens on the property. Doing a lien search is a must when buying houses at an auction.
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How Do House Auctions Work
When a house goes up for sale by auction, itll be listed online by either an estate agent or an auction house.
Auction properties are usually online for about a month before the auction. This gives time for interested buyers to view it and decide if they want to bid.
In a traditional auction, there is a set auction day and time. The auctioneer will invite interested buyers to bid in quick succession.
In a modern auction, you can submit bids online up until a final time and date.
In both cases, the seller will set a reserve price. This is the lowest amount of money they would accept to sell.
The highest bidder over the reserve price gets the property.
If youre the highest bidder, youll have to pay a deposit or a reservation fee on the day of the auction.
Traditional auctions are also known as unconditional auctions. They tend to be favoured by experienced investors and cash buyers.
This is because theyre less flexible and they have a shorter time frame.
Traditional auctions are usually held at an auction house. All interested buyers will be there and theyll place bids in front of each other.
If youre the highest bidder, you exchange contracts and pay your deposit on the day of the auction. The deposit is usually 10% of the purchase price.
If you back out, you lose your deposit as youve already exchanged legal contracts.
You then have to pay the rest of the money within 28 days.
So How Do I Actually Buy A House At Auction
First things first, youll need to have a plan to pay for the home.
If you have the cash on hand to cover your purchase great! But if youll need financing, now is the time to talk with a lender. Many home auctions require full payment at the time of purchase, while others may allow a short grace period to finalize financing.
But remember, when a house is being sold at auction, its because someone is trying to recoup a loss. There isnt going to be room for negotiation or special contingencies. You need to be ready to buy.
Buying a house through an auction has its risks, and you can minimize them by understanding the auction rules before you register, says David Clark, a Michigan-based attorney with 35 years of legal experience. Be prepared to pay an up-to-10% non-refundable deposit based on the selling price of the property.
Cash is king when it comes to buying a house at auction, though, so having as much on hand as possible will help your chances of winning the bid on your desired property. If theres no way around your need for financing and thats totally fine! just make sure youre definitely good for the loan and that it fits with the terms of the auction.
If youre using a mortgage to buy the property, never start bidding before youre pre-approved, warns Reynolds.
Not all auctions will allow you to use a mortgage, so be diligent with your research on each property.
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The Condition Of The House Could Be Awful
In a foreclosure, the lender has never occupied the property, so more often than not, they know very little about the structure and potential problems that may be lurking.
In many instances, the person being foreclosed on has lost their home because of financial difficulties and has not had the money to keep up with general maintenance.
There could be substantial issues with the house that are not readily apparent. Some of the more expensive components of a home, such as plumbing, heating, and electrical systems, may have been damaged. There could even be structural problems. A property needing significant repairs is not uncommon.
I have witnessed plenty of foreclosed homes where the owner has taken out their anger on the property. Ive been in a few foreclosures where the entire kitchen was removed! Vandals have also been known to strip entire homes of their copper plumbing.
Keep in mind disclosing the condition of a property and its know defects is not something the auctioneer or lender will be doing.
How Foreclosure Auctions Are Different
A foreclosure auction gives a homebuyer the chance to save money. Lenders who foreclose on homes and then sell them at auction may be willing to let go of the home for significantly less than the . The amount a buyer can save varies depending on the supply of foreclosures when there arent many foreclosures, the discounts available at foreclosure sales arent as steep as they might be at another time.
In early 2021, the foreclosure market is almost dried up, says John Durham, a top agent in McDonough, Georgia with 20 years of experience, including many purchases at auctions.
When housing prices are especially strong, homeowners typically have lots of equity in their homes. And then if they start having trouble making mortgage payments, they are much more likely to sell those homes via the traditional route than to let the home be foreclosed on.
Having said that, foreclosures still happen all the time, and the auctions traditionally held live and in person on the local courthouse steps on the first Tuesday of every month also continue. And many homebuyers are interested in auctions and the opportunity to snag a deal.
The catch home shoppers need to keep in mind? Very few, if any have the necessary cash, Durham says.
While state laws vary somewhat, as a general rule, there is no way out of the requirement to pay for an auction purchase in cash.
With these caveats in mind, here are ways to finance a cash purchase at auction.
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The Modern Auction Method
The modern auction method is sometimes known as a conditional auction, and it gives the buyer more time and flexibility.
Think of it like bidding on e-Bay. The auction runs online, usually for up to 30 days, and you can bid at any time.
If youre the winning bidder, you put down a reservation fee. Its usually around 5% of the purchase price. It pays for the estate agent and auctioneer costs.
You then have 56 days in total to complete the process.
You have to exchange contracts and pay a 10% deposit within 28 days, then you get another 28 days to complete.
With this longer timeframe, its much easier to buy with a mortgage than in a traditional auction.
Economic Overview & Outlook
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How To Find A Foreclosure Auction
Now that you are comfortable with how foreclosure auctions work, the first thing you should do is find a real estate auction. You can find announcements for foreclosure auctions in newspapers, on public records databases, and on websites such as foreclosure.com. If you are working with a real estate agent, they can also point you towards local resources.
Buying a home at auction is risky. You might get an amazing deal on a well-kept house. Or, despite your best efforts, you could end up with a house that needs costly repairs and renovations. There is no way to be certain until you turn the doorknob and enter your new home.
Even though you have a better understanding of how foreclosure auctions help, you might still have plenty of questions. Your real estate agent can answer them for you. No Realtor? Let UpNest help you. Our free service will pair you up with 3-5 local agents, who will submit competitive proposals. The right real estate agent will help you with your foreclosure auction and work with you to find the perfect home.
How do bank foreclosure auctions work?
When youre in a foreclosure auction, the lender is not allowed to profit from the auction. Often, these properties are sold at a loss if there is a profit, it is supposed to go to the foreclosed homeowner after the mortgage and any other liens are paid.
Is it risky buying a house at auction?
Property Condition And Inspections
A house could have all kinds of problemsremember, it used to belong to someone who couldnt afford the mortgage or the property taxes, so the owner probably could not afford any routine maintenance or repairs, either. Furthermore, once the loss of the home appeared inevitable, the owner may have intentionally neglected it or even seriously damaged it. Also, a vacant property may have been vandalized or occupied by squatters.
Assume that if the property looks terrible from the outside, it probably looks terrible on the inside. Auction properties are sold as is, and you will need to be able to afford any and all repairs. Tempting though it may be, you should not trespass to get a better idea of the propertys condition. You may have seen flippers on TV entering backyards, peering in or even climbing through windows, but doing so is illegal, and you definitely dont want to disturb anyone occupying the home, not only out of courtesy but also for your safety. Seek information about the propertys ownership history from local government records, talk to local real estate agents, and respectfully request information from neighbors.
Even if you can get a home inspection, that still has its limits. Problems behind walls, in ceilings, and under floors might not be apparent until you take possession. If the utilities are turned off, you may not be able to detect leaks, electrical problems, broken appliances, or malfunctioning HVAC equipment.
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Can You Buy A House At Auction With A Mortgage
You can buy at auction with a mortgage for some but not all properties. Similar to purchasing at auction with an FHA loan, mortgage lenders have certain requirements in place regarding property condition. Therefore, if you find an auctioned home that does not meet their standards, you will not be able to take out a mortgage on the property. Luckily, as long as the property is in habitable condition, you should not run into any financing problems.
As you may know, on auction day, the winning bidder will typically be responsible for presenting 10 percent of the purchase price. If you are hoping to buy a house with a mortgage, you will need to have the loan details before actually attending the auction. Additionally, mortgage lenders will only approve the loan for how much the property is valued . Keep this in mind as you bid, and you will have no problem purchasing a home at auction with a mortgage.
