Purchasing a House Foreclosure at Auction
Looking for a bargain? Who isn't, but when it comes to house buying the options can seem daunting. Real estate auctions can help you purchase a property below market value, faster and without paying many of the charges usually associated with house buying.
Any type of property can be sold at auction, but foreclosures could offer the best value. The lender which has foreclosed on the home wants their investment back quickly, so they sell it through an auction. Property auctions can invoke images of bidding taking place on the steps of a courthouse. And while this can be the case, convention centers, and hotel function rooms are often used instead of the courthouse.
Wherever the auction is taking place, the event will be open to the public, and anyone with the funds could walk away with a foreclosure bargain. Buying a foreclosed home, however, is not for everyone. You must step up your efforts in doing thorough due diligence.
There are essentially three types of foreclosures with an auction being one of them.
Finding an Auction Foreclosure Property
Information about foreclosures should be available at the county courthouse or online. Sometimes, foreclosure sales agents will be able to provide you information about what is going to be featured in upcoming auctions. A local real estate agent should also be able to help with your search. Since you are looking at auction properties, it should be noted that there isn't any commission paid to agents for auction sales.
If you decide to use a real estate agent or Realtor in your search for a foreclosure property. Be prepared to pay them out of pocket. Lenders and auctioneers generally don't pay real estate commissions.
Researching the Property
When entering into the bidding for an auction foreclosure property, you need to understand as much as you can about the house and the transaction details. If you have some concerns, independent advice can be sought from experienced real estate agents and attorneys specializing in these kinds of properties.
If you win the auction, you could be subject to any outstanding liens on the house. This could lead to you becoming responsible for unpaid bills related to the previous owner of the property. For this reason, it is vital to use the services of property professionals to run title searches to check for these problems.
Other things you should know before you commit to bidding include the value of the property and how much the borrower owes to the lender. If you are able to visit the property, this could be very revealing as well. However, you can't really do any more than walk or drive past the house, as it may still be occupied, and you don't want to be accused of trespass. Many times the ability to get an up-close look at the interior won't be possible. Obviously, an added risk.
Having the Money Ready
If you bid and win a foreclosed auction property, you will likely be required to pay the full amount very expeditiously. There can be exceptions to this in a handful of states where they will take a percentage of the sale price.
You may also be required to pay a deposit in advance. The deposit could be 5 or 10 percent of the anticipated sale price. Make sure you have all of your funds ready in time to avoid missing out on a good deal. One of the best tips for buying a foreclosure is to have a pre-approved mortgage or cash in the bank. You should speak to your lender to make sure they can close very quickly.
Attending the Auction
Be sure to get to the venue in plenty of time before it is due to start. Check the details of the auction property before you arrive; however, as there are many situations where the sale of a particular house is postponed or even canceled. When you arrive, you will need to get an auction bidder's card and fill out some paperwork.
If you are fortunate enough to win, they will need payment and give you a receipt or certificate of sale, dependent on the state law. Even though you have paid for the property at this stage, you should wait for the certification of title to come through before you start to do things to the house. The previous owner could file an objection to the auction and get back their ownership of it.
Online Auctions
Participating in an online auction is similar to the traditional process, though there are a few things you need to think about to make sure you don't run into problems. Online auctions can provide a lot more information about the house you are looking to buy, but you still need to do some research, including a title search.
When you find a foreclosure property you like the look of, you will need to register on the site. They will request your card details so that they can take a deposit to make sure bidders are genuine.
When using online auctions, it is advisable to get title insurance, as there is a risk of hidden liens transferring to you on purchase. To avoid having to paying someone else's debt, title insurance will protect you.
Be Prepared When Purchasing at a Foreclosure Auction
Before bidding, you will need proof of funds or loan documents, as you will need to provide this following a winning bid. The earnest money deposit will need to be paid soon after the successful bid. This deposit will likely be around 5 percent of the price, and you will typically have one business day to pay.
Representatives of the auction site will contact you following your winning bid and set out the process and timeline you will need to follow. If you aren't able to stick to their timetable, you could find that you'll lose your earnest money.
Buying one of the many foreclosures available through auction can ensure a great property deal. However, you do need to make sure you know what you are getting yourself into so you avoid a costly mistake.
Final Thoughts on Buying a Foreclosure at Auction
Without a doubt, there are pros and cons to buying a home at a foreclosure auction. Many of these homes are considered fixer-uppers that could require considerable work. If you have the skills and expertise to deal with problems, then you could find an excellent bargain. On the other hand, if you don't have the fortitude to stomach getting your hands dirty, an auction home might not be right for you. Purchasing a lemon could put you behind the eight ball financially for years to come.
Above all else, make sure you know exactly what you are getting yourself into before moving forward.
Other Helpful Active Rain Real Estate Resources
- FAQ's buyers ask purchasing a house - are you planning on buying a home in the near future? If so, you will be more well informed about the process by reading some of the most frequently asked questions buyers ask when purchasing a home. Understanding the answers will put you in a better position, not to make any serious mistakes.
- What to know about renting to own - is deciding between renting or owning a home giving you trouble? One compromise worth considering is a rent to own agreement. While not all that common, a rent to own arrangement can end up being the best of both worlds.
- Helpful tips for first-time buyers - see some excellent advice for those who are considering purchasing their first piece of property. It is easy to make mistakes when buying your first home. Don't be one of those buyers who does!
Use these resources to increase the odds of having a trouble-free real estate transaction.
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