How to Buy a Home at an Auction

A home typically comes up for auction when the owner - who may be an individual or a builder - has been unable to sell the property and the property has been taken back by the lender in foreclosure. Once the lender owns the property, it can choose to sell it with the help of a real estate broker - or through an auction company.

Instructions

Difficulty: Moderate

Things You’ll Need:

• Calculators
• Black Ink Pen
• Pads Of Paper

1. Research the property being auctioned. If it is a single property that went into foreclosure, get the specifics about the property: its size, its amenities, how much is owed against it, and what the opening bid is. Check with the county recorder or local title company for a list of properties currently in foreclosure.
2. Compare the sales prices of similar properties in the area so you have a good idea of what the subject property is worth. Properties within 3 miles of the subject property are the most reliable predictors of value. Compare sales of properties with the same number of bedrooms, bathrooms, and square footage if possible. Add or subtract for differences and amenities such as pools, decks and fireplaces.
3. Get financing. Typically, homes at auction require a deposit of from $1,000 to $5,000 for an accepted bid, and the remainder of the financing must be in place within a specified period of time.
4. Know your price limit. Auctions work on creating an atmosphere of agitation and excitedness. The more frenzied the auctioneers can get a crowd, the more likely the prices will be bid up. Don't get swept up in the moment. Know how much you are willing to spend and stick to it.
5. Be prepared to walk away. Don't feel as if you have to buy something just because you are ready. If the deal isn't right for you, it's not a deal.

Tips & Warnings

• A price for an auction property is based on the amount of loan owing against the property plus any fees or expenses that have been incurred during the foreclosure process. Typically, this amount is less than market value. If you do your homework and are prepared, the auction can be the ideal place to get a deal on a piece of real estate.
• Each auction has different time requirements for financing. Typically, you have to have the money or the loan in hand, ready to fund. Check the financing requirements prior to bidding.
• Stay out of a bidding war. If there are several people bidding on one property, stay quiet. Adding your bid will only escalate the tension. Once most of the people have dropped out and bidding has slowed, then you can step in. No sense in bidding up your own price. Wait.
• If there are a number of properties being auctioned off one after another, the properties at the front of the list - typically the first and second properties - go the cheapest. People usually wait to see what everyone else is going to do before they bid, and it takes a couple of good deals to go by before they realize they better get in on the action.
• Buying a home at an auction can be risky. Most of the time, if the property isn't new, you won't have the option of getting inspections and may not see the can of worms until you've bought it.
• Most homes bought at auction are purchased in "as-is" condition, with no warranties, guarantees or disclosures. Caveat Emptor - buyer beware!
• A block of properties in a subdivision may be auctioned off piece by piece, and there may or may not be models that you can preview to see what the property looks like on the inside.
• Consider all the added costs. Sometimes the auctioneer's fee is added to the price of the property, or there are taxes owed against the property; if you forget to add that in, you could be paying too much.
• The time and effort you put into researching a property for auction may be wasted if the borrower cures the default and reinstates the loan.