How to Determine a Bid Price at a Foreclosure Auction
Foreclosed properties are houses, land and other real estate on which the borrower has defaulted on the mortgage and the bank that made the loan plans to sell, usually at auction. Buying foreclosed properties can result in substantial cost savings, as the bank is typically trying to recoup what it is owed, which may be significantly less than the property is actually worth. A bank selling a house on which $150,000 is still owed will primarily be interested in recovering that outstanding debt. But the house itself might be appraised for much more. However, determining a bid price at a foreclosure auction requires research and knowledge of the local real estate market in order to make a good investment.
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Instructions
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How to Determine a Bid Price at a Foreclosure Auction
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Learn the foreclosure laws in your state so you know what's involved. All foreclosures must be advertised in advance and most postings include a minimum bid.
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Go to foreclosure sales and study the process before bidding on any property.
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Locate real estate you might want to buy at foreclosure. Auctions are legally required to be posted at the courthouse in the jurisdiction where the foreclosed property is located, as well as published in the newspaper. Compare the foreclosed property to other property in the neighborhood to understand the market value of the area, which will help in determining how much to bid.
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Contact the individual listed in the posted notice to get information about the auction, including the minimum bid price, if not already provided.
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Research the property title at the courthouse to verify it is not subject to any second or third mortgages, liens, lawsuits against the defaulted borrower, or any other factor that could delay or prevent transfer of the title to a new owner. If there are pending legal problems, walk away.
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Visit the property to determine the physical condition of the land and improvements. Any obvious problems such as a worn roof or structural damage should be calculated as an additional expense beyond what you are willing to bid. Estimate all expenses for needed repairs and add the figure to the minimum bid price to determine if the property still represents good value.
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Listen to the terms and conditions of sale on the day of the auction, being prepared to pay for a successful bid with certified funds (typically a cashier's check). Some foreclosure auctions allow the successful bidder to secure the sale with a downpayment of 10 percent of the sale price, although the down payment could be forfeited if the bidder doesn't come up with the balance of the purchase price within a specified time.
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Decide on a maximum bid before the auction begins and stick to that amount.
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Know that most states require lenders to bid on their foreclosed properties, although rare is the auction where a lender will bid more than is owed on the property. There's no reason you should, either, unless the value is so compelling that competing with other bidders is worthwhile. Remember, it is vital to determine the difference between the amount the bank is trying to recover and the actual fair market value of the property.
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Tips & Warnings
Visit neighbors around the property facing foreclosure and ask them about the individuals who lived there, and whether they have any knowledge of physical or legal problems with the property.
Foreclosed properties are sold as-is and could have physical problems that might not be noticed immediately. Buyers acknowledge this risk when bidding at auction, knowing that the final sale price will probably still be a solid investment if they have done their due diligence in researching the property.
References
- Photo Credit http://blog.foreclosure.com/category/bank-owned-homes/
