How to Buy a House at Auction

"Sold to the highest bidder!" Buying a home through an auction can mean incredible deals. In most cases, the seller is either the government, which has taken possession of the property due to unpaid taxes, or the lender, when the former owner stopped paying the mortgage. Despite the sad circumstances, competition for homes can be keen.

Difficulty: Challenging

Instructions

1. See How to Buy at Auction, How to Buy a House, How to Buy and Sell a Fixer-Upper and How to Buy a Foreclosed Home for more information.

2. Get preapproved for a mortgage. Have your financial package ready to go before the bidding begins.

3. Look in the newspaper classifieds or under "Home Auctions" in the Yellow Pages and on Internet search engines. Call nearby real estate agents to see if they're aware of any scheduled auctions. Add your name to mailing lists from local auction houses to be alerted to upcoming opportunities.

4. Get a list of the properties up for auction. Get as much information as possible beforehand from the auctioneer to get a feel for which properties may interest you.

5. Visit the properties on the block. Auctioneers generally have a preview date during which tours of the house will be given, although this isn't guaranteed.

6. Have any home in which you're interested inspected by a professional inspector. This can cost several hundred dollars but will identify any significant problems that affect the value of the home, such as pest damage, faulty foundations or leaks. You may get approval to have the home inspected as a contingency, but bear in mind that contingencies of any kind reduce the probability of the bid being accepted at the lowest price. Other auctioneers only sell properties as-is.

7. Decide how high you're willing to go. Mentally setting your maximum bid can stop you from spending more money than might be reasonable for a property, or losing a deposit.

8. Realize that buying at auction involves some risks. In some cases, you can't withdraw a winning bid, even if you're not able to secure financing later. Penalties for backing out of a winning bid can be steep, often as high as 25 percent of the bid amount or whatever the bid deposit may have been.

9. Finalize your mortgage if yours is the winning bid. Contact your lender as soon as possible after the auction to wrap up your financing and paperwork.

10. Close escrow. Typically, you will have two weeks to 30 days to do this.

Tips & Warnings

• Some auctioneers, at the home owner's request, will set a reserve price that guarantees a minimum price will be received. This means that even if you're the winning bidder, you may not get the house if your highest bid isn't over the reserve price, which should be disclosed in advance of sale.
• Auctioneers may add a buyer's premium of 5 to 10 percent of the winning bid as their cut. Be sure and take this into account when you're calculating the maximum price you're willing to pay. Confirm who pays the auctioneer's fee.
• Check with the auction company to make sure the property has a free and clear title. You don't want to buy something only to learn after the fact that you may be liable for unpaid taxes or other bills attached to the property.
• If you're buying a property as an investment, rather than a residence, the mortgage approval process may require a much larger chunk of change up front.

[MrAlffie]

on 12/22/2008 A home in town (Volusia County, Florida) was up for short sale. The listing real estate company refused me entry as they "had enough bidders (3)". Then the home went up for Foreclosure in Deland and Suntrust Mortgage bought it back. Finally, after 4 months, the listing agent let me in to view the property. When I said I wanted to place a bid, she said I could not unless the 3 short sale bidders backed out at the new price of $305,000. Today I called her, and 2 of the 3 backed out. The third is looking for financing at....$240,000! Now, I know why the banks need a bail out!!!!! Who do I contact????

[Rino]

on 10/18/2007 If you would like to learn more about buying a house at auction for yourself or an investment...check out this web site. http://members.cox.net/buyahomeatauction
Well worth the money.

[rhyme]

on 8/15/2007 * In a seller's market, many houses are sold by auction because competition on the night may ramp the price up. In this case, the reserve might be quite high as there is no imperative to sell on the night.

* If the auction does not reach the reserve price, the highest bidder may be able to negotiate with the seller after the auction. In some jurisdictions, any sale agreed on the auction night is binding (i.e. not subject to financing or other considerations), just as if it was sold through the bidding process. On the plus side for the buyer, this means that if someone makes the seller a higher offer the next day, they can't back out of the deal either.

* Make sure you have the required deposit with you as a bank cheque on the night.

* Get the auction package in advance and get in touch with a conveyancer or lawyer and have them go through the paperwork before the auction.