House auctions can be a high-risk, high-reward method of purchasing a home —especially if you aren’t properly informed about what truly occurs during the bidding and buying process. At foreclosure auctions, the prices of homes are generally far lower than market value, as the original properties were foreclosed. The affordability of bidding on foreclosed homes at housing auctions means that owning a home becomes more accessible to potential investors or home-buyers.
However, hidden auction fees and the occasional inability to view the interior of the home before purchase can cause some severe damage if you don’t know what to look for or how to navigate the situation. That being said, it is vital to complete your due diligence as a buyer and check the property for any liens or other issues.
The foreclosed properties are almost always sold “as-is” with no warranties at all. This is very important because the auction will assume that you have researched the property and are bidding on something that you believe is worth a certain value. Backing out of a sale after a winning bid will result in a loss of your deposit. The deposit size itself can vary from location to location, but expect around $5,000 in order to. It is refundable if you do not win in the auction.
How Does A Home End Up At Auction
The homes available for purchase at housing auctions are foreclosed, meaning that the original property owners could not maintain ownership of the property. This can come about from a variety of different issues. Firstly, if a homeowner doesn’t make payment on multiple months of mortgages, the bank can reclaim the property as a form of payment. The bank, or lender, looking to get back their return of investment on the property then list it on a housing auction in order to quickly move the sale. Failure to pay property taxes can also result in a property’s foreclosure
Once a property is foreclosed and prepared for listing at a housing auction, there are two different types of housing auctions it can end up at: a confirmation auction, where the lender retains the ability to approve or deny the final sale, or absolute auction, where the highest bidder receives ownership of property regardless of the final price.
Know The Risks of Home Auctions
When bidding on a foreclosed property at housing auctions, bidders are for the most part unable to tour the home beforehand. Purchasing a property without knowing its true condition can be risky. In the rare case that you are permitted to tour a property before bidding, there’s only so much that an untrained eye can uncover. Only a professional contractor or home appraiser can accurately determine the real condition of the home, including any electrical or structural issues.
In some cases, auction bidders might even have to settle claims on the property itself after purchase. These hidden fees are unlikely —but not impossible— and can put a financial strain on your wallet.
Dave Ramsey Discusses Buying a Foreclosed House with a Caller on his Show
Get All of The Home Info
Limiting bidding to housing auctions that allow inspections is a great method of reducing potential risk. However, remember that there are many housing issues that can be hidden out of immediate sight. When touring a foreclosed home, it is essential to bring along a professional real estate broker or contractor in order to receive an estimate of repairing existing damage. While this might reduce the number of properties you can view, it increases the chances of you happily moving into a new home, stress-free.
Check Claims Ahead of Time
One of the biggest risks of bidding on foreclosed homes is with paying claims. Nobody wants to ruin the experience of moving into their new house by coughing up hard-earned cash to settle liens. Before bidding, be sure to invest in hiring a title search company to investigate any preexisting issues. After winning a bid, it’s always a good idea to take out title insurance
Know The Competition
Housing auctions attract a diverse crowd. While many bidders are hopeful first-time home buyers that would otherwise be unable to afford a home, others are seasoned professionals with in-depth housing industry experience. By completing your own research on the local housing market ahead of time, you can be more competitive with your bidding and know when to stop bidding on a property. If this seems too daunting to achieve, then partnering with an experienced realtor can help any home-buyer stay informed and be more prepared for bidding.
Where to Buy Foreclosed Homes at Free Public Auctions
There are countless different ways to find house auctions, such as through multiple listing services (MLS) and online sites such as Hubzu. These databases list a wide variety of information, pictures, and occupancy status, which all can help simplify the bidding process and reduce risks. However, occasionally a real estate license is required for access, meaning that partnering with a professional realtor is a smart way to preview these properties.
And when you do finally head to your housing auction, bring cash; while the rules between auctions differ, most require a refundable cash deposit. If you do win on a bid, payment is generally done through either cash or cashier’s check. And don’t forget that successful housing auction bidders might have to pay fees associated with the event, so come prepared with cash in hand.
Bidding on foreclosed homes at a housing auction is an affordable and accessible way to become a property owner —especially if you carefully follow the tips and advice given in our housing auction guide. With a little bit of research and the help of professionals when necessary, you’ll be fast on your way to owning the property of your dreams. Get your cash ready and start your bidding at a local home foreclosure housing auction, today!