More than 300,000 homes per month are going into foreclosure nationwide, according to the Internet real estate marketplace RealtyTrac. Many of them are being sold at foreclosure auctions.
Should you buy your next home this way? Possibly, but take care. While you can get a great deal — some foreclosed properties sell for less than half of their assessed value — not all auctioned homes are bargains, and complex auction rules can trip up novices. What you need to know…
When people picture real estate auctions, they typically think of what is known as sheriff’s auctions, also called trustee auctions or courthouse auctions. These are conducted by a government entity and feature recently foreclosed-upon homes. But they can be extremely hazardous for novice bidders, who may run into unwelcome surprises.
Much better: Bid at “live auctions,” large-scale real estate auctions run by major auction companies. Here, unlike with many of the sheriff’s auctions, you can inspect homes prior to the auction… obtain a mortgage to finance your purchase… and never have to deal with owners forced out by foreclosure. But you may pay up to 30% more than at a sheriff’s auction.
Helpful: Review the auction’s terms and listing descriptions to confirm that the properties you bid on are free and clear of all liens. Live auctions usually are well-advertised in local newspaper real estate sections.
In the weeks before bidding at a live auction…
Get preapproved for a mortgage. Mortgage lenders often are on hand at live auctions to provide quick financing — but there’s no guarantee that they’ll give you a loan. Obtaining mortgage preapproval prior to the auction gives you time to shop around for attractive loan terms.
Work with a buyer’s agent who is very experienced with foreclosure auctions. This agent can help you identify soon-to-be auctioned homes that meet your criteria… and help you decide how much to bid. Buyer’s agents receive their commissions from the seller, so there’s no reason not to work with one.
Identify three or more homes that you like in upcoming auctions — not just one that you love. Falling in love with one home encourages overbidding. Pick neighborhoods you love, then visit all homes up for auction in those areas.
Examine homes carefully before bidding. Homes bought at auction are purchased “as is” — you can’t lower your offer later if a home inspector discovers a problem. If there’s any hint that significant repairs will be needed, assume the worst and adjust your bid accordingly.
Before an auction, set a maximum bid for each property you like. Ask a friend to accompany you to the auction, and instruct this friend to stop you if you try to exceed these maximums.
Helpful: In this market, consider setting your maximum at between 50% and 75% of the home’s “State Equalized Value” (sometimes called its “Assessed Value”). The city or county assessor’s office can provide this figure. Stay at the low end of this range if your local real estate market is weak and you can be patient.
