Buyer Beware at Auction

By
Real Estate Agent with RE/MAX Exclusive Collection

We’ve all heard the saying, “If it sounds too good to be true, it probably is.”

Whoever coined that phrase probably attended their fair share of foreclosure auctions.

The Orlando Sentinel published an interesting article chronicling the painful lessons a couple experienced when participating in a recent auction. They had “won” the auction and received a home for $16,000 in cash. What they weren’t aware of was their winnings also included a hefty $250,000 mortgage.

It is an unfortunately common scenario. First-time auctioneers or those inexperienced with the process buy out an HOA foreclosure, not knowing that a much larger bank foreclosure is looming over the property. Quite often, the banks will not hesitate to foreclose on the new owners in a startlingly short amount of time.

It can be argued that it is always the responsibility of those who take part in auctions to make sure they do due diligence on the properties they bid on. And this is true, you should always be in full possession of all the facts before you go into any type of investment. However, foreclosure auctions do not make this process easy, even for those of us who have a great deal of experience.

The rise of online auctions has also made the process more muddy than before. Whereas auctions once took place in the courthouses, a process that intrinsically filtered out less experienced buyers, now the process is far more accessible than ever before, for better and worse. Prices are driven up due to an increased audience of less savvy individuals, which is certainly a boon to the seller, but brings even more truth to the phrase, “Buyer Beware.”

Ultimately, foreclosure auctions can be a source of great deals. But buyers need to realize that that auction process begins far before the actual bidding. Find out about the value of the property. See if there are any mortgages or liens that are still attached. Who is the actual owner? Who foreclosed on the property? These are all incredibly important questions that will determine whether the property is a great investment opportunity or should be avoided. And, of course, an experience real estate agent can be a great asset when deciding as well.

Comments (0)