Home prices, interest rates, and inflation are all high currently, making it difficult to purchase a home. Purchasing one at a real estate auction offers a potential alternative to finding a home, whether for a primary residence or as an investment. And while the prospect of purchasing a home at auction can be exciting, it can also be scary – especially if you are unfamiliar with the process. And unfortunately, a failure to do your homework up front can result in a huge financial mistake.
Those looking at purchasing real estate at an auction need to arm themselves as much as possible to know what to expect at every stage of the process. This information can serve as a foundation for what to expect throughout the process.
What is a real estate auction?
Most auctioned homes have been foreclosed on, meaning the former owner could not keep up with the mortgage payment. As a result, the mortgage defaulted, and now the lender is trying to recapture as much capital as possible. While it may be tempting to think that all auctioned homes desperately need a lot of work, that isn’t always the case. You can find a great deal and even some ‘move-in ready’ properties. But the demand for these homes may be high, which could result in a bidding war, which drives the final sale price up.
Purchasing a home through an auction is generally done through an auction house, which is the company that handles auctions. There are two different auction formats where real estate can be purchased.
- Live auction: When most people start researching real estate auctions, they find online options. However, live auctions are still the most popular format. These are typically held in a county courthouse or at the property that is being auctioned, although they can be located anywhere. You will find the location in the public notice. Anyone may attend an auction, but only registered bidders can make a bid on the property. In order to register, you must show proof to the auction house that demonstrates you have sufficient funding to purchase the property.
- Online auctions: Digital or online auctions have exploded in popularity in recent years. Online auctions can be a great way for real estate investors or homebuyers to locate and purchase properties in different areas.
In addition to the format of the auction, there are several types, including:
- Minimum bid: This type of auction defines the minimum price an auctioneer will accept. This information is generally included in the auction listing materials.
- Absolute auction: With this type, the property is sold to the bidder who offers the most money with no defined minimum.
- Reserve auction: With a reserve auction, the seller reserves the right to review the bids and accept or reject the highest offer within a defined timeframe.
What are the steps to purchasing a home at an auction?
Purchasing a home at an auction is far different from working with a realtor to buy a home. Multiple steps are required to ensure you have sufficient knowledge and resources to make an informed purchase. Before purchasing a home at an auction, you will want to:
- Research the property. Unlike real estate on the general market, you can’t just schedule a tour for a home that will be auctioned. Different properties have different requirements. Some allow you to visit the home during pre-defined times, while others may not allow onsite inspection before purchasing. Therefore, you will want to find as much information as possible, which can be done online through a records search. If you are in the same area as the home, you can also drive by or view the outside of the home from a distance. The biggest thing to remember here is that, as a buyer, you don’t have the same contract and protection with auction purchases. You are buying the property ‘as-is,’ often without knowing the property’s true condition. Finding as many details as you can about the history of the property can give you more assurance that it’s a good investment, but it can still be risky.
- Do a title search. You will want to hire an attorney to do a title search before seriously entertaining the idea of submitting a bid on a home. Any liens on the home will become your responsibility. Therefore, you will want to do a title search to verify that there are no unpaid property taxes, court judgments, or mechanic liens.
- Get your financing figured out. You cannot purchase a home at an auction with a mortgage. Rather, you will need cash, a cashier’s check, or a bank money order. Some auctions require full payment immediately, while others allow you to pay a percentage at the auction and the remainder within a defined period.
Purchasing a property at an auction can be a great financial move under the right conditions. To shop real estate auctions in your area online, contact ShoMeMore Real Estate Auctions.