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.
What To Look Out For When You Buy A Home At Auction
Heres where it gets tricky. In all of these cases, its important to do as much research on the property as you can. Its common for houses being sold at auction to sit vacant for weeks or months, so no one is paying much attention to upkeep or maintenance.
That means the yard will probably be overgrown and the power will be shut off. No air conditioningespecially in the summercould lead to mustiness or even mold and mildew issues. Vacant homes are also targets for vandalism, so be prepared to deal with missing copper pipes or appliances. They could also be full of trash.
At the bare minimum, drive by and look in the window so youll have at least some idea of what youre getting yourself into before you make a bid. And pull as much research on the neighborhood as you can. Find out what similar-sized houses on similar-sized lots in the neighborhood are valued at andif you cansee exactly what theyve been selling for. That will give you a good idea of what to bid. Dont forget: Youre looking for a deal.
At the bare minimum, drive by and look in the window so youll have at least some idea of what youre getting yourself into before you make a bid. And pull as much research on the neighborhood as you can. Find out what similar-sized houses on similar-sized lots in the neighborhood are valued at andif you cansee exactly what theyve been selling for.
We cannot stress this enough!
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.
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What Is A Real Estate Auction
A real estate auction involves the public sale of a property through competitive bidding.
The most common reasons for real estate auctions include:
- Mortgage foreclosures
- Unpaid homeowners association fees
Auctions might be held in person or online. Theyre typically run by the sheriff or another county official, but there are also companies that specialize in auctioning real estate on behalf of banks, governments, and estates.
Understanding Online Real Estate Auctions
Online real estate auctions usually take place because a seller wants to sell their home to the highest bidder as quickly as possible or because a bank has foreclosed on a home and wants to get the highest sale price possible for the home to reduce the amount of loss the lender suffers.
Regardless of whether an individual or a lender is auctioning a home, that auction will fall into one of three categories:
In all cases, once an auction is complete the seller must approve the winning bid. That approval can take 15 days or longer, and in some cases can result in the house being re-auctioned in an attempt to increase the amount of the winning bid.
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How To Find Real Estate Auctions
You can locate real estate auctions by searching online for real estate auction plus the name of the county you want to buy property in.
Here are some common places youll find online listings and auction details:
- Auction websites and real estate websites, such as Bid4Assets, Auction.com, and Hubzu
- County court websites
- The United States Treasury Departments seized real property auctions website
Wait For Your Certificate Of Title
While youll get your certificate of sale immediately, the actual certificate of title may take as much as 10 days to complete. During that time, the original owner may file an objection to the sale and pay the amount owed in full to retain their rights to the property. Dont do any work on the property until you receive the certificate of title.
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And If Youre The Winner
Be ready for things to move fast. With Auction.com, for example, the contracting department will contact you within two hours and walk you through the online purchase and sale agreement, which shows the total purchase price and the timeline for submitting documents and payments. Make sure that escrow receives your documents and payments on time otherwise, you could lose your earnest money deposit.
Look closely at the property page for each property you are planning to bid on. Many properties have whats called a buyers premium, which is the fee charged by the auction company for conducting the sale, from marketing through the closing. The amount can vary, but its usually 5% of the winning bid amount. Many properties dont have a buyers premium because the bank or seller has arranged to pay this fee out of their proceeds from the sale.
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.
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Finance With The Seller
Because the seller of a home put up for auction is usually a lender, it would make sense that the lender would finance the purchase.
However, lenders very rarely finance the purchase of homes sold at auction. In a pinch, if your other options for coming up with the cash run into problems, it may be worthwhile asking for a loan from the lender that is selling the house. This isnt likely to be a good main strategy, though.
Why Are Some Houses Sold At Auction
Most people are somewhat familiar with how to buy a house, even if they dont know any of the details about how it works. Theres a For Sale sign, and a phone number to call. You visit the house and decide if its for you. If it is, you tell the agent, who prepares an offer and tells you what steps you need to take next. At some point, the sign is gone and the house is yours.
But there are other ways that homes are sold, and auctions are one of them. There are two main ways that a house ends up at auction: through foreclosure due to missed payments or defaulting on tax payments.
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How To Buy A House At Auction: The Lowdown Dirty Truth
If youre wondering how to buy a house at auction, be warned! Buying a house at auction is an adventure, says Nedalee Thomas, a homeowner in Orange County, CAand she should know. Thomas, a former Realtor®, was a buyer who purchased her three-bedroom HUD home through a stressful, fast-paced auction process.
My prayer was, and had been for many years, that I would get a home at a discount, she says. And so, as a buyer, she did: The auction process netted her a dream place well under market price. She paid about $250,000 for the propertyan astonishing deal, especially considering that nearby homes without a lien go for nearly double.
In the four years since she bought it, the homes value has increased by $200,000. I never expected that, Thomas says.
Homes sold at auction are typically in pre-foreclosure, foreclosure, or have some type of lien on them because the owner fell behind on their home loan with their mortgage lender. As a result, the properties are often in distress.
Looking to become a bidder and score a sweet real estate deal of your own? Auction homes provide a number of benefits, but the process seems designed for a certain adventurous kind of person, since many of the homes dont qualify for a mortgage. Heres what to know going in.
Check For Any Claims Liens And Occupants
Before you bid, youll want to hire a title search company to see who might hold liens against the property. As the owner, you will become responsible for any liens, which means more money out of your pocket.
There may be other claims against the homenot just tax liens but also contractor liens or a second mortgage. Bidders should check with the auction company to ensure that the property has a clear title. If you do win an auction, youll want to buy title insurance during escrow or immediately after closing to protect yourself against any liens not uncovered during the title search.
In some cases, the owner or a squatter will be occupying the property, and you will have to evict theman often-lengthy process that can be unpleasant at best and expensive at worst. It could be more advantageous simply to offer them several thousand dollars upfront to move out and hand over the keys.
Refrain from doing anything until you hold the title. Avoid the urge to start renovations or move into the property immediately after getting your certificate of sale. You will still need to wait up to 10 days or so to receive your certificate of title. The property is not actually yours until you hold that certificate the owner could still retain his or her right to the home by filing an objection to the sale with the court or by paying off the loan.
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Pros And Cons Of Buying At Auction
Buying a home at auction is a completely different experience from buying a home the traditional way. The type of person who might want to try buying their property via auction is often financially savvy and can afford the risks that come with an auctioned home.
Before you commit to buying a home at auction, make sure you understand the benefits and drawbacks of the process.
Property Tax Default Auctions
Another way a home 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 seizes the property. The resulting tax lien auction is conducted by a local sheriff, clerk, or the county or local tax authoritys comptrollers office.
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How Buying At Auction Works
Weve redefined the role technology plays in auction to offer buyers full transparency and complete control. Buying a property doesnt have to be difficult, which is why we offer our buyers access to all property information, inspections, and disclosures. That property youve been vying for? Its only a search away.
What Bidders Need To Know
Before bidding at a real estate auction, you should understand the risk you are taking. A bad purchase could haunt you for years. You also need to understand the auctions rules and be prepared to follow them before trying to participate.
You will have to register and submit a refundable deposit of 5% to 10% of the propertys expected selling price to the entity holding the auction. If the auction is in person, be sure to check in at least an hour before the scheduled start and obtain an official card, which you will raise when you are ready to bid.
Winning a property at auction can work in two different ways.
- In a lender confirmation auction, the lender does not have to accept your offer, even if you are the highest bidder.
- In an absolute auction, the winning bid gets the property.
The starting price of the auction may be the balance owed on the mortgage or a lower amount designed to spur bidding. 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. Auction properties are not always great dealsfor example, the auctioneer could set a hidden reserve price on a property, which is the minimum that must be bid.
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Get Your Financing In Order
Most foreclosure auctions accept cash, bank money order or cashiers checks for payment. In nearly every state, youll have to pay in full immediately following the auction of the property a few states allow you to pay a percentage at auction and the rest within a certain time frame.
County foreclosure auctions often require advance deposits. The deposit amount varies across municipalities, but generally runs from 5% to 10% of the expected final bid amount of the property.
Should You Buy A House At Auction
Buying a home at auction can yield a great bargain if you do your homework and can withstand the risks.
You need to know how to research the title make sure you are buying a first position lien, not a second position lien that could be wiped out, Hollander says. Understand your obligations to pay cash and when, and realize there are many risks involved.
Thats why auctions are often attended by real estate investors seeking to flip a property and make a profit.
It works well for people with a great deal of experience or who are comfortable asking for help filling in gaps in their knowledge, Castle says. Its smart to go into the process with ample cash reserves, as well, which will reduce associated risks.
If youre new to auctions, it can be helpful to attend a few to get a sense of how they work.
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Confirm All Auction Details Even On The Day Of The Auction
Its very common for foreclosure auctions to be postponed or even canceled. Sometimes an auction is canceled because the borrower comes up with the money to pay the lender the amount they owed, obtains a loan modification or sells the property as a short sale. Auctions might be postponed for a myriad of reasons for example, the bank or lender might not be able to compile the proper documentation in time, or the owner might request more time to complete a short sale.
Find Out If You Can Finance The Home
It might be possible to finance an auction property with a home loan. You wont be able to make an offer contingent on mortgage financing, though, so youll have to get pre-approved.
Discuss your plans with the seller and lender to see how quickly youd be able to close the loan and pay the seller if you win. A property thats not safe to live in will require some type of home improvement loan.
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