There are a lot of ways to find your perfect home nowadays – however, the options may be even wider spread that you imagine. Auctions are just one of the many ways that you can find a home you love.
First, we need to understand how properties end up at auction.
- Foreclosure auction
- This happens when a borrower has not paid his mortgage for several months. When this happens, the bank will file default notices. The homeowner is then required to pay or negotiate with the lender to get the issue resolved. The time between when an owner stops paying and when a home goes up for auction can vary from a few months to a year.
- Tax lien auction
- This happens when a borrower is not paying property, state or local income taxes. The unpaid tax authority will be the owner in this case and may decide to auction off the property.
If a home is put up for auction, the auction may take place anywhere from a local courthouse to a hotel or even the front yard of the home. There are two ways homes are auctioned. A lender confirmed auction – meaning that the lender has to accept the offer before the house is sold. You may not win even if you are the highest bidder. In an absolute auction, the property goes to the highest bidder.
Auction prices can start at the remaining mortgage on the home or a lower price -used primarily to help spur the bidders to bid more. In a foreclosure auction – the lender cannot gain any profit from the auction. Instead, the lenders often take a loss, and if there does happen to be a profit, all proceeds are designated to the owner of the home, after all the remaining mortgages, and liens are paid.
If you are interested in participating in an auction near you, you can learn more about the property by visiting an open house (if available) or check the local listing. If the property in question is not participating in either, a drive-by may be your only option.
Check county recorder websites and foreclosure listings to see the full list of auctions in your area.
Payments are often expected to be in the form of a cashier’s check and many times properties are sold to investors who can afford to pay cash for a home.
There are some auctions, however, which allow for a financed purchase. Buyers must be pre-qualified and some auction companies even require you to work with their prefered lender. You may be able to work with the lender of your choice if you do your research and come ready with rates from competing lenders.
What are the Benefits of buying through auction?
- First chance to buy a home you may not otherwise be able to afford at deeply discounted prices.
- Fewer offers/less competition.
What are the Drawbacks of buying through auction?
- Homes sold at auction are sold because the buyer could not afford payments. If the buyer cannot afford payments, they most likely won’t be able to afford repairs and the home may be completely trashed. There may be additional claims against the home and even a second mortgage which could also create problems. We would recommend speaking with the auction house to see if the title on any potential home is clear.
- Buying a home via auction requires massive amounts of cash. Different auction houses have different policies on payment, but most will require a cash payment to secure your bid.
- Some auction houses do not allow a home inspection or even provide an interior view prior to the auction. This could create major problems for the buyers.
- Squatters: If a squatter occupies the property or a former resident is still residing there, you may have to perform an eviction – which not only draws out the process of move in or remodel and repair, but may also cost you even more money if the said squatter/former resident does not go by choice and you have to go to court.
In the end, of course, this is your choice – however, we do recommend buying a home in an auction only if you are an experienced buyer or investor and can afford any extra messes that may come with the purchase of a home.