You are not going to find a four bedroom Colonial for 50K. Those ads luring you with talk of properties purchased for a dollar are the very example of the caveat: If it sounds too good to be true, then it probably isn't. However, there are bargains to be had in today’s real estate market, and auctions are a great place to find them.
Things You'll Need
Real estate at auction
Locate a property. Whether you’re interested in investment property, commercial or residential, there are hundreds of properties offered at auction every day. Start with the Internet and look for free government and foreclosure sites that list out properties by area. Your local newspaper will also have an auction section (the largest on Sundays) with properties coming up for auction sale. Additionally, contact the attorneys or auction firms listed in those ads and ask what’s in their pipeline that hasn’t yet reached the public forum. Don’t forget the banks and mortgage companies. Ask about their non-performing portfolios. If a bank has already gone through the foreclosure procedure and bought the property back, that means they own it and it’s sitting on their books. While you won’t be buying it at auction, you may still be able to get a great deal directly from the lending institution.
Perform due diligence. This is basically legalese for research. Once you’ve located a property (or two) you need to put some effort into finding all you can about the property. Start with the auction firm and find out all you can from them. Then take matters into your own hands. Do your own comparables so you know what similar properties are selling for. You do not want to overpay at an auction. Go to the local and county assessor’s office and find out what taxes/liens may be on the property. Depending on how serious you are, you may even want to pay for a title search.
Look at the property. It sounds obvious, but it may also not be as simple as you would think. If you're buying at a foreclosure auction, you (and the bank and the attorney and the auction firm) have no right to be on the subject property until after the auction is complete. Until then, the mortgagor is still the owner of record and has every right to kick you off his property. That being said, get as close to a physical inspection as you can. If someone is facing foreclosure, he probably isn't too happy. People have been known to do crazy, destructive things to their own properties if they are angry and desperate. Knowing that you will be trespassing, you still may want to peek in a window or two. At a minimum, check out the grounds, the area. Talk to the neighbors.
Secure your deposit. Depending on the property and the auction firm, you will be required to bring with you to the auction proper identification and certified funds of a sizable amount to place as a deposit in the event you are the successful bidder. Generally, you can have your bank make out a certified check to you for the appropriate amount. If you win the bid, you will be required to endorse the check to the auction firm.
Secure financing. Particularly with auctions, you should know what you can afford and how you intend to finance the property before you attend the auction. Most auction firms require you to close within 30 days of the auction date and they are quick to take your deposit if you are unable to perform to the letter of the contract.
Attend the auction. Register with the auction firm. While you may now feel like the authority on the property on which you’ve your sights, pay close attention to the auctioneer’s terms of sale recitation. He may tell you that you’re buying the property “subject to” outstanding liens and taxes. That would make you responsible for those debts. Remember, you are buying the property “as is” when you buy at auction. There are no lemon laws. Again, if this is a foreclosure, you probably will not be allowed inside the property -therein lies a risk of auction purchases.
Bid. If you are the highest bidder, you may now be on your way to ownership, but if the minimum bid hasn’t been met, then the bank buys the property back. If you reach the minimum, you’re set to hand over your deposit and sign the purchase and sales agreement.
Close within the contracted time frame.