Purchasing a home at an auction is a great way to get a great deal on a hidden gem, but it requires knowledge and finesse to find a good investment. Although auctioned properties often get a bad rap for being distressed or otherwise problematic, plenty of perfectly good properties go up for sale in real estate auctions every day and present great opportunities for real estate investors. Here is a look at the auction processes and how you can get in on the action.
How Do Auctions Work?
Auctions can be intimidating at first glance, but they become easier to understand once you break down the process. Anyone can sell their home at auction, but there are no guarantees as to what the winning bidder will pay. So the majority of properties typically sold at auction are those that have been repossessed due to a foreclosure or unpaid tax lien.
First, the auction house will publish a catalog of available inventory and make it available to the public. Homes sold at auction are offered “as-is” and bidders usually won’t have the ability to inspect the property beforehand.
Next, the auction house will go through properties one by one and sell them off to the highest bidder. The bidding will start at a set minimum and if there are any specific terms that need to be addressed, the auction company will go over them before accepting offers.
How to Buy Property at an in-Person Auction?
There are two different types of auctions; in-person and online. In-person auctions happen at all types of venues, including county courthouses, hotel conference rooms, and business centers. They are hosted by banks, auction companies, government institutions, tax authorities, and a variety of other organizations.
In-person auctions happen rather quickly, so you’ll have to do your due diligence beforehand to ensure you’re getting the best deal possible. The best thing to do is track the inventory and know which properties you’re interested in before they go up for sale. If their addresses are available, you may even decide to drive by before the auction to see them in person. It’s also wise to have your financing in order, so you can feel confident that nothing will prevent you from winning your bids.
If you win an auction, you’ll be expected to pay on the spot or, in some cases, within the next business day. Once you’ve made the necessary payment, you’ll fill out some paperwork and receive a certificate of title shortly after.
How to Buy a Property at an Online Auction?
Another way to purchase a property at an auction is online. An online auction works in basically the same way as an in-person auction. But the benefit of online auctions is that you can bid on homes all over the world and even multiple properties at a time, all from the comfort of your own home.
Online auction sites offer a wealth of information on the properties for sale, including the location, any existing encumbrances or liens, and the approximate market value of the property. It’s important to do your due diligence and read this information carefully, because there may be added costs such as a brokerage or technology fee, that aren’t customary at live auctions.
Other than that, the process is basically the same and each property listed for sale will be auctioned one by one and sold to the highest bidder. If you win, you will have to submit the required documents and payment. After that, you will receive a certificate of title.
How to Buy a House at an Auction without Cash?
Most auctions require you to have financing available at the time of purchase and payment will be due shortly after the auction. But there are a few ways that you can purchase a home at an auction without cash on hand.
You could take out a personal loan to finance the purchase. Traditional mortgages are not available for homes purchased at auction because they require a thorough inspection and underwriting process. But if you have good credit, you can always take out a personal loan or tap into the equity of your primary residence.
You could also turn to non-traditional sources such as hard money lenders or crowdfunding sites to finance the purchase. Whichever method you choose, you should make sure to get your financing together before bidding on a property or you may face problems when it comes time to complete the transaction. But, there are plenty of financing options available if you don’t have the cash, but have decent credit or more than 20% equity built in another property.
Advantages of Buying Auctioned Properties
The biggest advantage of buying a home at auction is that you can often walk away with a perfectly good property at a rock bottom price. Just because the owner had financial troubles or needed to walk away and get it sold quickly, doesn’t mean there is inherently anything wrong with the structure.
While it’s also true that a certain number of properties sold at auction are distressed, a good percentage of them are not. If you prepare for the worst, you may be surprised and find a hidden gem. This presents a variety of opportunities for investors to pick up a desirable home at a huge discount.
Another benefit of buying a home at an auction is that you don’t have to deal with a lengthy closing process. All you have to do is win your auction and you will be the proud owner of the property the same day and not have to deal with brokers or intermediaries.
Disadvantages of Buying Auctioned Properties
Although they offer the potential to find great deals, purchasing a home at an auction also comes with its risks. It’s difficult to know what the inside of the property will look like until after you’ve purchased it and there is a good chance it will be distressed. Those who are being foreclosed upon often let their homes deteriorate or cause damage to them on the way out. That’s why it’s important to do your due diligence and be prepared for the worst-case scenario, so you won’t be caught off guard.
It’s also easy to get carried away at an auction and end up bidding more than you can realistically afford. That’s why it’s important to crunch the numbers beforehand and know what your limits are. If you want to be successful when purchasing a property at auction, you need to have a strong plan of action so you don’t make any expensive mistakes.
Anyone who wants to learn how to buy auctioned properties should watch a few first to get a feel for the process. They should also analyze the inventory available and decide what kind of property they’re after before jumping in. Auctions can be an exciting way to find a great deal on a home. But they also carry risks and anyone looking to purchase a property at auction is wise to do their due diligence and wait for the right home to go up for sale.