You don’t always have to go the traditional route when it comes to buying or investing in a home. Auctions can be an enticing option for many buyers, and especially for investors, who are looking to snag a deal on a home and skip the hassle of the standard home buying process.
Plus, the auction scene can be an exhilarating and exciting experience no matter how many times you go back — particularly for investors who get quite skilled at bidding.
But, if it’s your first time buying a home at an auction, you’ll want to be thoroughly prepared and know exactly what you’re getting yourself into.
You can either attend an auction in-person or partake in an online auction. Indeed, online auctions have shot up in popularity primarily for their convenience as it certainly doesn’t hurt that you don’t have to put on pants or leave the house.
Even with online options, in-person auctions are still very much a popular choice for home buyers and investors. These auctions can take place in any public location from the actual home property and convention centers to hotel ballrooms and county courthouses.
Most of the homes you’ll find at both in-person and online auctions are foreclosed homes where the homeowner missed mortgage payments or didn’t pay property taxes. The lender or the unpaid tax authority can then put the home up for auction.
Buying a home at an auction is a notoriously risky venture for most home buyers — all the homes you bid on come as-is, you get what you get. And while you might get a great deal, you could also inadvertently inherit liens and expensive fees that come along with the home.
So before you head to the county courthouse, here are seven things you should know about buying a house at an auction.
1. Research the Auction Thoroughly
Each auction operates a little bit differently so you’ll want to make sure you know what to expect and what documents you’ll need in order to bid on a house. Typically, at most auctions if you want to bid you’ll need to head over early to register as well as bring along financial paperwork.
And on the day of the auction be sure to check online for any changes as many times the auction can be cancelled unexpectedly if the homeowner makes mortgage payments at the last moment taking the home off the auction block.
2. Have All Your Finances in Order
Once you win a bid on a home, things tend to move quickly.
Auctions expect that you pay in full immediately after the auction closes so be sure that you have enough funding in hand to cover paying for the home’s full price. Most auctions will accept cash, cashier’s checks, or a bank money order.
Also, don’t be surprised if additional fees crop up. For instance, in county auctions you’ll typically be required to put down a deposit of 5% to 10% of the home’s price. In other cases you may have to pay 10% in auction fees, bank interest and penalties, attorney fees, and more.
3. Do a Title Search
Part of the risk of buying a home at an auction is that you don’t know a whole ton about the home you’re bidding on — especially financially.
It’s not uncommon that many of the foreclosed homes you’ll be bidding on will have liens against them, which then will be transferred on to you as the new owner. You’ll be responsible for any fees or expenses owed whether they’re tax liens, contractor liens, or even a second mortgage.
This is why it’s in your best interest to hire an attorney to do a title search and see what claims are there. Hopefully the title is clean, however, you’ll still want to get title insurance to protect yourself on the off chance hidden liens pop up that didn’t show during the title search.
4. Partner with a Real Estate Agent
A real estate agent can be an invaluable asset who will use their expertise to help conduct research on the home up for auction. Many agents will be familiar with the area and can help you navigate the housing market as well as plan out price points and your budget.
Keep in mind, however, real estate agents only collect commission through online auctions, not with in-person auctions.
So, while you certainly can work with an agent for an in-person auction, it may only make the most sense to partner with an agent if you’re bidding online, as the real estate agent will be more motivated to help you if they’re getting paid.
5. Learn Everything You Can About the Home
Generally, you won’t know a whole lot about the home you’re bidding on. While auctions do provide information on the home, you won’t be able to truly get an entire picture of the home and its condition even with extensive research.
Depending on the auction, they may have conducted a home inspection though the majority of the time you’re left in the dark. And because the home is usually still occupied you can’t take a look at the property yourself.
The best you can do is drive by the home and check out the exterior — if it’s in good shape, the interior is probably also in good shape. If the outside looks shoddy, it’s most likely the inside is worse for wear.
6. How to Find an Auction
While you can find auctions through your newspaper or by contacting your local government, one of the easiest ways is to use the popular websites RealtyTrac and Auction.com. These sites will give you general information on the auction and what homes are up for bids.
One of the best resources are real estate agents and brokers who have direct access to the Multiple Listing Service (MLS) database, as they can give detailed information and specifics on the homes up for auction that’s not disclosed to the public.
Real estate agents will have access to information including sale price, days on the market, financing, and property defects.
7. Risk vs Reward
If you’re able to realistically manage your expectations, buying a home at an auction may be a good choice for you. You’re able to skip a lot of the steps in the home buying process, face less buyer competition, and even purchase a home at a bargain price.
However, buying a home at an auction is still an extremely risky way to acquire a home. You receive the home as-is, which many times means the home has been trashed on the inside with appliances, copper wiring, and anything valuable stripped away from the home.
You’ll want to be sure to budget for repairs and renovations as well as have extra cash handy in case the home comes with liens.
Additionally, know that until you have the title in your hand you don’t technically own the home, and at the last minute the homeowner may pay the mortgage or taxes, taking the home off the market even though you technically won the home.
In some cases, even if you do hold the title, the previous homeowner may attempt squatter's rights forcing you to go through the legal system to try and evict them from the home. Going the traditional route of buying a house can be far less stressful and actually more cost effective.
Going with the Traditional Home Buying Process
Sure, bidding on a home at an auction can be quite exciting, however, the risk that comes along with purchasing a home at an auction can certainly cost you more when all is said and done.
By working with a local, experienced Clever Partner Agent, both buyers and investors can ensure the home buying process goes smoothly, that they stick within their budget, and find a perfectly intact dream home without any liens or surprise expenses.
Partner Agents can also save you more with a home buyer’s rebate where you’re eligible for a $1,000 rebate on homes over $150,000 which you can put toward closing costs and other moving expenses. Get in touch with Clever to learn more!