Know Who Youre Bidding Against
Auctions can be prime opportunities for scoring a deal on a house because fewer people are competing for a property. But be forewarned: this competition is fierce. These auctions dont attract just first-time homebuyers. Youll also likely be in the bidding room with experienced real estate investors and other professionals in the housing industry.
Those who attend home auctions are extremely well informed, explains Ben Mizes, a licensed Realtor and real estate investor. They know the area and whats driving profits on real estate investments. Of course, new investors should give home auctions a try, but you need to understand who youre bidding against.
One way to get ahead of the competition is to research the real estate market in that area. Look into how many homes are selling for in the locality to determine where you should draw the line in terms of what you bid. A Realtor can help here.
Foreclosure Listings Government Sites
HUD.gov. Potential investors and other home buyers can find one- to four-unit residential properties that the Department of Housing and Urban Development acquired from foreclosure actions on FHA-insured mortgages.
USDA-RD/FSA Properties. The United State Department of Agriculture-Rural Development and the USDA-Farm Service Agency list properties on this website. Here, youll find a small number of single- and multi-family homes, farms, and ranches.Buyers should contact the local USDA-RD office for more information on the property and how to buy it.
IRS Seizures. This Internal Revenue Service website is a portal to finding homes and other property seized by the tax agency for nonpayment of federal taxes.
Have Extra Money Set Aside
You should have more than just the money that will be needed to buy the house in savings. This extra cushion of cash can help fund surprises like higher bids than you expected and costs related to liens, HOA fees, and repairs. The more money that you have set aside for this project, the better off you will be when it comes time to take possession of your foreclosure home. The commonly suggested amount of savings for this kind of purchase beyond the price of the actual home itself is 6 months of your income/mortgage payments.
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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.
How To Find A Foreclosure Auction
There are various sites online that will show you justforeclosure homes that are set to be put up for auction. This is often the best place to look for foreclosures in your local area and sites that are regularly updated will be your best bet. You still should know that not all of these sites are very current and you might inquire about many homes that have already been auctioned before you are able to finally find one to bid on.
You can also track down foreclosures through a third-party foreclosure agent who is also known as a trustee. Some people will also find homes that are being foreclosed on in their local area by simply driving by. You might be able to find out information about the foreclosure from a sign that has been placed in the yard of these homes, although this is not always how foreclosure is handled.
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How Do You Find Foreclosures In Los Angeles
Sites like foreclosure.com and auction.com will provide a list of foreclosure auctions. For bank-owned properties, visit the REO directories at the banksâ own websites. And for pre-foreclosures, you can check popular websites like Zillow. Check out our list of the best foreclosure websites to find more resources.
Types Of Real Estate Home Auctions
There are two types of real estate auctions. The live and online, with the latter becoming more prevalent as people grow more comfortable making significant purchases online.
Some companies are helping to make the online purchase process more efficient and transparent. However, it is still necessary to carefully review contracts, escrow issues and disclosure documents, and other paperwork.
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Who Should Not Buy A Foreclosed Home
Shopping for a foreclosed home is time-consuming and frustrating. Finalizing a deal is worse.
If you need a home right away, or you aren’t emotionally prepared to handle repeated disappointments, you probably shouldn’t take this on.
It’s also a bad idea if you’re shopping at the top of your budget. You may well need some extra cash to cover unexpected costs.
California Is A Competitive Market
There are forty million residents in California, and a large percentage want to own real estate. This translates to a competitive market because everyone would like to take advantage of rising prices. They want to enjoy appreciation.
There is a solution to that which Ill explain when I show you how to buy auction homes in California. I can assure you there will be plenty of properties to choose from.
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Buying Homes At Auctions
Buying homes at foreclosure auction is the best way to ensure you get the discount you want on your next real estate purchase. Whether you’re in the market for a new home for yourself or your family, or you’re looking to buy property for investment purposes, the savings you earn through buying at foreclosure auction are unlike anything you’ll find through an agent or on the open market. The discounts you’ll get at auction mean earning instant equity in your home, which makes generating investment value through appreciation over time or by flipping the home much easier.
Of course, there are plenty of tricks to the trade. Not every foreclosure property is going to offer top value, and you have to know how to pick and choose the right homes. You also have to know how to buy at auction. This means calculating costs ahead of time,and carefully planning your maximum bid so that you ensure you get the value you want out of your investment. It also take discipline to stick to your plan and not get swept up bidding more than you want to in the heat of an auction bidding war.
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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The Servicemembers Civil Relief Act
This federal law extends foreclosure protections to military servicemembers who were on active duty at the time their property was foreclosed. Military personnel who quality can challenge or reverse their foreclosure for 90 days after they leave active duty, which could complicate some foreclosure purchases.
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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How Does A Home Get To Foreclosure Auction
Of course, how a home gets to a foreclosure auction is another story. The process begins when a homeowner defaults on their mortgage or a tax debt. If the homeowner cannot make good on their default within a given period of time, depending on state law, the lender will have the right to schedule a foreclosure sale of the property as a means of recollecting the debt owed. In some states, the lender may have to file a case in court to be granted the right to foreclose. In others, they may just be able to proceed with setting a sale date on their own. In either case, if the homeowner does not pay off the debt owed before the sale occurs, the foreclosure auction of the property will go forward as planned and be awarded to the highest bidder.
Important Things To Remember
Even if you win the auction, the home might not be yours. Sometimes there is a redemption period where the homeowner can still pay off debts and get the property back. View the chart on the nolo.com website to see if this applies to your state. Because of the redemption period, the homeowners might not be formally evicted until well after the auction, so its good to remember that you might not be taking possession right away.
There may also be unpaid property taxes or liens. You often cannot get title insurance on a foreclosure for at least six months. The home may also be in disrepair and require significant renovation. It is considered wise to budget about 10% of the purchase price for such repairs.
Purchasing a foreclosed home is as much of a risk as it is a potential steal of a deal. Make sure you are prepared financially for additional expenses.
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Close On The Purchase
How do foreclosures work at closing? If youâre paying cash for your Los Angeles foreclosure, and the purchase agreement doesnât have any contingencies to worry about, closing will be painless and fast.
Closing on a foreclosure with financing can take a little longer. Lenders usually wonât send a representative to attend the closing in person. Instead, the closing paperwork is mailed to the bank and mailed back once itâs complete. This canadd days or weeks to the process.
Another difference from a traditional closing is that the seller â in this case, the bank â probably wonât cover any of the closing costs. While a savvy agent might be able to negotiate a deal for the bank to cover part of the closingcosts, don’t rely on it.
Since closing on a Los Angeles foreclosure can be complicated, you’ll want to have an experienced agen to walk you through the protracted and sometimes confusing process.
When you use Clever to find an agent, not only will you get a highly experienced professional, but you could also qualify for cash back. This free money couldbe a great way to get started on renovating your foreclosure purchase.
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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What To Look For In A House At Auction
Prospective buyers of auction homes need to mind just as much due diligence with their purchases as traditional acquisitions, if not more so. If for nothing else, the goal is the same: to buy a home that can be rehabbed and sold for more money than the original purchase price. That means people buying a home at auction need to look at every detail they would account for when buying a home using traditional means. That said, auction homes coincide with additional criteria that buyers need to keep in mind. In particular, people buying a home at auction will need to pay special considerations to the subject propertys condition. It is common for auction homes to sit vacant for a long time, making them susceptible to neglect, mold, and vandalism. Therefore, at the very least, make sure the condition of the home meets your own criteria. That may mean checking to see if all the copper pipes are still in place or conducting mold remediation.
You Must Have Cash To Make The Purchase
Most auctions have very strict rules about how you can pay for your purchase, and they almost always involve cashiers checks or cash. You can finance auctioned properties and there are loans available, and we will discuss them later, but in order to bid, youll have to prequalify by showing that you have cash available to complete the purchase, often on the same day as the auction.
Thats why most purchasers of auctioned-off properties are real estate investors. They generally have the financial backing of investors, or they have set up their businesses to allow for high cash reserves.
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Trustees Sale Of Foreclosed Property
This is the public auction that sells the home to the highest bidder. The sale starts with an opening bid that is the minimum that the lender will accept for the home based on the outstanding loan balance, any unpaid taxes, and other costs that will be associated with the sale.
You will need to be present to bid on the home or attend the online sale if the process is done virtually. The highest bidder will get ownership of the home at this juncture. You will need to know that you will have the final say about how long the current owner gets to stay after you have bought the home, and this will be written into the final documentation of the sale.
What If I Can Buy The Home I Want By Paying Off Second Liens
If a homeowner has defaulted on a second lien, the first lien for the primary mortgage is probably not far behind. Your purchase will always be subordinate to the first lien, which could foreclose and wipe out all subordinate liens.
There are sophisticated investors who know how to make money in these situations, but unless youre one of them, you are best off forgetting you ever saw the listing.
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Where To Find House Auctions
One of the best ways to find a home auction is by looking through direct multiple listing services . These are county databases that offer a wealth of useful information about properties up for bid. You can find photos, occupancy status, leases and even details on any property defects. In essence, they can trim or eliminate some of the steps we listed above. However, each county sets its own rules and limits. In some cases, you may need a real estate license to access these.
You can also find listings online through sites like RealtyTrac. Online house auctions continue to grow in popularity, but the information here isnt always complete. For instance, a website may list a home that isnt officially foreclosed. The owner may be in the process of making up late payments or negotiating a deal with the lender. In this case, the listing can disappear as you bid for it.
Local real estate brokers may offer some guidance too. But this pool is small because most dont collect commissions from these auctions.
Hire A Top Los Angeles Realtor With Foreclosure Expertise
Every Los Angeles foreclosure is unique. A realtor who specializes in dealing with foreclosures can help you navigate competing claims, clouded titles, and iffy as-is properties. They may even have inside information about foreclosures that havenât hit the open market yet, giving you a head start on your perfect foreclosure.
Most importantly, a good agent can tell you what to expect from your buying process. Many foreclosure purchases can drag on because of issues with the bank or tangled ownership. This can be anxiety-inducing for a first-time foreclosure buyer, but an agentwill be able to tell you if whatâs happening is unusual or if itâs par for the course.
Need help finding a Los Angeles agent with foreclosure expertise? Clever is here to help. We have a large network of agents that work for brokerages like Century 21, Keller Williams, and more. They offer the expertise you need to beat the competitionand come out ahead with your offers.
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