Are you in the market for a new home, but don't mind going the extra mile to snag a phenomenal deal? If so, it may be in your best interest to consider real estate auctions.
Types of Auctions
The two types of auctions are:
- Absolute: The highest bidder automatically wins.
- Subject to Lender Confirmation: The highest bid is only accepted if the lender approves of the offer.
Prior to the actual day the actual bidding takes place, it's a good idea to find out which type of auction you will be participating in. Use the contact information in the listing to confirm which type of auction you will be attending.
How to Locate Properties
Beyond the standard classified advertisements and online listings from sites like Auction.com, you can find these properties by checking with your real estate agent. Also, peruse the legal section of your local newspaper for a comprehensive listing of properties in your area. Each ad will contain instructions on how to place your bid, whether online or at a physical location.
The Auction Process
Depending on the property, bidding may be done at one of the following locations:
- Office of the auction company
- Conference center
Says RealtyTrac, "Most auctions are at a public place in the same county where the property is located. In many states, all the auctions in each county are at the same location."
Before deciding to bid, take a tour of the property if possible. If not, detailed information regarding the interior of the home is typically provided to all prospective buyers. Just a word of caution: a messy exterior may indicate an unpleasant interior, so proceed with the caution if the home is still occupied, suggests Zillow.
On the day of the auction, you will need to either have a pre-approval letter from your lender in tow or a cashier's check equivalent to ten percent of the property's listing price plus any anticipated auction fee. Either of these will hold the property until the closing takes place.
Once the bidding is complete, the remainder of the transaction, or the closing, is conducted just like a traditional real estate deal. Payment will be due in full, and failure to seal the deal if you are the highest bidder could result in steep penalties.
Helpful Bidding Tips
Here are a few tips to help you secure the best deal at the auction.
Do Your Homework
Before heading to the auction, you want to conduct extensive research on the property as well as the local area that it resides in to get an indicator of the market values of surrounding properties, recent sales, crime rates and attractiveness of the school district. These are key factors that many look for when searching for a new home for their family. They will also indicate if the market values are on the decline in the area, and if the house is even worth bidding on in the first place.
To confirm the validity of the information you gather, consult with your real estate agent.
Based on all the information you gather from the research phase, you should be able to determine the optimal market value for the property. You can also use Zillow's foreclosure tool. Although some of the bids will start out at the outstanding balance of the home, others will sell well below the market value because the bank is desperate to recoup at least a small portion of its loss, according to Realtor.com.
Keep Your Options Open
You have to always keep your options open because someone may outbid you on the property that piques your interest the most. However, keep in mind that there will likely be plenty more from which to choose.
Arrive on Time
Be sure to present yourself in the most professional manner possible so the other bidders in attendance will know you mean business.
Stick to Your Plan
If a bidding war erupts and the price exceeds your initial budget, Zillow suggests that you move on. The last thing you want to do is get stuck with a purchase price that greatly exceeds the market value.
Bring a Contractor Along
Concerned about the cost of repairs? Bring a contractor along to review the property and obtain an accurate estimate for the home repair budget. If the auction will be held off-site, another alternative is to examine the exterior of the property to assess structural issues.
Get First Dibs
"The first few properties offered often sell for less because bidders are trying to figure out pricing patterns. If your dream property is one of the first auctioned, you may be in luck," says Bankrate. Take this nugget of advice and you may very well be the early bird that gets the worm.
Other Important Considerations
These risk factors should be considered before purchasing real estate from an auction:
- Risk of inheriting a property that has a great deal of underlying damage
- Cosmetic neglect because of the prior owner's reckless disregard for the property
- Dirty title because of outstanding tax obligations
Therefore, you should pay a visit to property appraiser's office and consult with legal counsel to ensure that any outstanding tax liens are satisfied and the title is clear. Also, carefully analyze the estimated cost of potential repairs to ensure that they do not outweigh the benefits.
By doing so, the reward could very well blow the risk out of the water with the equity you will have in your new property if you get a great deal at the auction.