These days, many of the homes that get foreclosed upon end up being sold at real estate auctions. And these “distressed homes” are often sold below market value. What this means to you, as a home buyer, is that you could potentially save a lot of money by purchasing a home at auction.
Below, we have compiled 15 helpful tips and facts for first-time auction attendees. These are some of the things you should know before attempting to buy a home at a real estate auction. This list also explains the steps leading up to an auction.
1. Legally speaking, there are two types of foreclosures: judicial and non-judicial. As you would imagine, the former requires a court approval while the latter does not. This tends to vary by state.
2. Most foreclosures in this country are of the non-judicial variety, meaning they never go to court before a judge.
3. The non-judicial variety is also referred to as a “power of sale” foreclosure. It allows the trustee to sell the property more quickly (on behalf of the lender) by avoiding a court process.
4. During the pre-foreclosure stage, the homeowner may work with the lender to get back on track with his or her mortgage payments. Also during this stage, the homeowner could sell the home before the bank forecloses on it, typically through what’s known as a real estate short sale.
5. If the homeowner fails to (A) get back on track with mortgage payments or (B) sell the house via short sale, the property will move along the path to a real estate auction.
6. About 15 – 30 days before the real estate auction is to take place, a notice of sale will be posted for public viewing.
7. In most cases, the notice of sale is posted at the county courthouse (in the county where the foreclosed property is located). The auction itself may also take place at the county courthouse.
8. In addition to the notice of public sale (which is a minimum requirement), the lender will announce the auction event through other channels as well. They want a good turnout at the event, because having a lot of qualified bidders will increase the likelihood of a quick sale.
9. The lender wants a quick sale above all else, because they are losing money and wasting other resources by keeping the non-performing (unpaid) loan on their books.
10. In true auction fashion, the attendees will bid on the property, and it will eventually be sold to the highest bidder.
11. After the home is sold, a deed will be given to the successful bidder. This person is now the new owner.
12. The starting price for a home being sold at auction is normally based on the amount owed to the lender (combined with other expenses the lender might have incurred when foreclosing on the property).
13. Overbidding is a common mistake among first-time attendees. This will drive up the price of the home and defeat the purpose of buying through an auction, which is to obtain a property below market value.
14. In most scenarios, attendees must have financing lined up before they will be allowed to bid on a property. For obvious reasons, real estate auctions are typically cash-based.
15. Most homes sold in this manner are sold “as-is” with no warranties of any kind. So if you have the chance to inspect the property before bidding on it (even if it’s just a cursory walkthrough), take that opportunity.
Obviously this article does not cover everything you need to know about buying a home through a real estate auction. Entire books have been written on the subject, and you should read them. Consider this list a starting point for your additional research.