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How To Buy
Foreclosure Real
Estate At Auction
Foreclosure Real
Estate At Auction
If you are looking to buy your first house, you should stay away from real estate foreclosure
auctions. There are just too many mine fields to maneuver for a novice. However, if done
correctly, a foreclosure auction can produce the deal of a lifetime.
Research property.
Once you have the details of the foreclosed house, including the address, from your real
estate agent, visit the property. Drive through the neighborhood and make a list of the
positives and the negatives. Positives are things like schools, shopping centers and the
cleanliness of the streets. Negatives are junk cars in driveways, young people hanging
around at street corners and excessive loud music. While you might not be able to inspect
the home because it might still be occupied, you can get an idea of how the inside stacks
up. If the front yard is filled with weeds and has garbage, there is a good chance that the
inside will be in bad shape.
If you can get access to the inside of the house, take a qualified rehab contractor with you.
The contractor will tell you which repairs are necessary and how much the repairs will cost.
When you are preparing for a big auction where several houses are involved, try and have
a "liking" for 6 or 7 houses. It means more work. But buying a house at an auction takes
dedication and hard work. Remember, you will be competing against professional real
estate investors.
Look for liens.
Not all foreclosure properties will be free of liens and other encumbrances. You could be
buying a house that has several liens attached to it. In this case you will have to pay the
liens in order to register the home and get clear title. Liens that are usually overlooked are
IRS back taxes, county property taxes and spousal and child support. To protect your
investment do a title search.
Check for zoning bylaws.
Check to see if there are limitations to the use of the land and the house. Also check for
any issues with toxic waste. If a house is designated as a "historical" site simply pass on
the deal.
Understand auction process.
It would be a good idea to go and sit in on a couple smaller auctions to see how an auction
is conducted. Most auctions you have to register. This requires some money, usually about
$5,000. You bring a cashier's check or a check payable to yourself which you sign over to
the company conducting the auction, or the seller. After you are registered you are given a
number for bidding purposes. If you are unsuccessful in your bidding the check is returned
and you can re-deposit the check in your bank account.
If your bid is accepted there is a buyer's premium that must be paid. It is generally 5% of
the bid. So if you bid and get a house for $200,000 the auctioneer charges you $10,000.
Set maximum bid.
Know how much you are willing to bid and stick to that figure. Remember to factor in the
fee paid to the auctioneer, the costs of the repairs and the closing fees.
Arrange financing.
If you don't have cash to pay for the house, make sure that your financing is solid. Bring the
documents from your lender and present them to the auctioneer before the auction begins.
The worse situation for you is winning a bid and then the financing falls through. It will cost
you about $2,000 which will be deducted from the deposit you made when you registered.
Home Warranty.
Purchase a home warranty plan to protect yourself. Warranties will cover plumbing and
electrical problems. They will not cover the roof or the exterior, or pre-existing issues, such
as a washer or dryer that wasn't working when the house was bought.
The key to getting a good deal at a foreclosure auction is hard work, and sticking to your
budget.
auctions. There are just too many mine fields to maneuver for a novice. However, if done
correctly, a foreclosure auction can produce the deal of a lifetime.
Research property.
Once you have the details of the foreclosed house, including the address, from your real
estate agent, visit the property. Drive through the neighborhood and make a list of the
positives and the negatives. Positives are things like schools, shopping centers and the
cleanliness of the streets. Negatives are junk cars in driveways, young people hanging
around at street corners and excessive loud music. While you might not be able to inspect
the home because it might still be occupied, you can get an idea of how the inside stacks
up. If the front yard is filled with weeds and has garbage, there is a good chance that the
inside will be in bad shape.
If you can get access to the inside of the house, take a qualified rehab contractor with you.
The contractor will tell you which repairs are necessary and how much the repairs will cost.
When you are preparing for a big auction where several houses are involved, try and have
a "liking" for 6 or 7 houses. It means more work. But buying a house at an auction takes
dedication and hard work. Remember, you will be competing against professional real
estate investors.
Look for liens.
Not all foreclosure properties will be free of liens and other encumbrances. You could be
buying a house that has several liens attached to it. In this case you will have to pay the
liens in order to register the home and get clear title. Liens that are usually overlooked are
IRS back taxes, county property taxes and spousal and child support. To protect your
investment do a title search.
Check for zoning bylaws.
Check to see if there are limitations to the use of the land and the house. Also check for
any issues with toxic waste. If a house is designated as a "historical" site simply pass on
the deal.
Understand auction process.
It would be a good idea to go and sit in on a couple smaller auctions to see how an auction
is conducted. Most auctions you have to register. This requires some money, usually about
$5,000. You bring a cashier's check or a check payable to yourself which you sign over to
the company conducting the auction, or the seller. After you are registered you are given a
number for bidding purposes. If you are unsuccessful in your bidding the check is returned
and you can re-deposit the check in your bank account.
If your bid is accepted there is a buyer's premium that must be paid. It is generally 5% of
the bid. So if you bid and get a house for $200,000 the auctioneer charges you $10,000.
Set maximum bid.
Know how much you are willing to bid and stick to that figure. Remember to factor in the
fee paid to the auctioneer, the costs of the repairs and the closing fees.
Arrange financing.
If you don't have cash to pay for the house, make sure that your financing is solid. Bring the
documents from your lender and present them to the auctioneer before the auction begins.
The worse situation for you is winning a bid and then the financing falls through. It will cost
you about $2,000 which will be deducted from the deposit you made when you registered.
Home Warranty.
Purchase a home warranty plan to protect yourself. Warranties will cover plumbing and
electrical problems. They will not cover the roof or the exterior, or pre-existing issues, such
as a washer or dryer that wasn't working when the house was bought.
The key to getting a good deal at a foreclosure auction is hard work, and sticking to your
budget.
