One thing you may notice when you attend your first foreclosure auction is just how many professional investors show up. You’ll know them by the cell phones stuck to their ears and the laptops spread before them. This is serious business for them. They have deep pockets and the knowledge of when to, as Kenny Rogers once said, “hold ‘em, and when to fold ‘em.” Do you have that knowledge?
For the average guy or gal out there just trying to find a home, attending a bank foreclosure auction is like swimming in shark infested water right before the chum’s thrown in. If you don’t know what you’re doing, you’ll be gobbled up real quick.
Yes, buying a foreclosure house at auction can lead to bargains. Not always, but enough of the time that professional investors make a lot of money selling homes that they bought on the cheap, for bigger money.
If you’re new to the process and wondering how to buy a house at a foreclosure auction, consider first attending as an observer. In fact, make it a point to do so.
Buying Foreclosures at Auction: Do You Have Nerves of Steel?
You’ll pretty much have to if you’re planning this foreclosure purchase as a home to live in. While you may have inspected the outside of the house and the property, you have no way of knowing what lies within. Sure, sometimes, just prior to an auction, there may be an open house, but those situations are rare. The chances are good that you’ll be bidding on a home whose interior remains sight-unseen.
If the owner is still in the home, or there are tenants, you run into another set of problems. Foreclosed homeowners and soon-to-be-evicted tenants have a tendency to not want anyone – especially appraisers – in the home. Few lenders will loan on a house that isn’t appraised.
Then you need to take into account that if you are the winning bidder, you are responsible for evicting the current residents. This may be time consuming, expensive and an emotionally draining task.
Oh, did we mention you’ll need lots of money? Typically, you’ll need a big chunk of cash when buying a house at auction.
How to Swim With the Auction Sharks
To be successful at a bank foreclosure auction, there are rules you need to follow. Here are four basic to-dos before attending a real estate auction:
- Know which house you want and when it will be sold.
- Research liens on the house.
- Check the condition of the house.
- Are there tenants?
- Find out market value for recently sold homes in the area.
Hopefully, you’ve attended an auction or two as a sort of dress rehearsal. On the big day, know exactly how much you can spend. It’s easy to get caught up in the momentum and overbid. Bring a certified check, drawn to the amount specified in the bidding instructions.
One of three things will happen at the foreclosure auction:
- The auction will be postponed or canceled. This happens frequently and for a number of reasons. Sometimes the homeowner comes up with the money and is able to save his home. If the auction is postponed and you’re interested in the house, find out the date of the next auction
- The property is sold to the trustee. This is the lender’s representative, usually an attorney. If the property doesn’t sell for at least the opening bid amount, it is purchased by the trustee and becomes an REO (real estate owned) property of the bank and will eventually be put on the market.
- The property is awarded at auction. Hopefully, you are the winning bidder. If not, another third party bidder wins the auction and the house is sold.
Most real estate experts advise the non-investor, in the market for a home, to avoid foreclosure auctions and to go after the bank-owned properties if you truly feel you need to buy a foreclosed home. Your real estate agent is your best compass when navigating these waters.