Real estate auctions have gained in popularity in recent years because they are a quick and efficient way to sell and buy property. When banks take back foreclosed-upon homes, they sometimes hire auction houses to unload properties. Banks are increasingly selling foreclosed properties at auctions to reduce the growing inventory of REO properties. That scenario has become more common as the number of owners with little or no equity — or even negative equity — has grown, particularly in cases of pricier homes with recent mortgages.
Bidders must be registered prior to the auction with the company conducting the auction. Generally, winning bidders must immediately give the auctioneer a deposit, payable in cash or cashier’s check only. Deposits are typically between 5 and 10 percent of the outstanding loan amount and the winning bidder must be able to close in cash within 30 days. The deposit amount varies from state to state and the auction company handling the sale. Some states require winning bidders to pay the full sales amount the same day as the auction.
There are other hurdles too. All properties are sold “as is” and prospective buyers should inspect the homes prior to the auction, so they know what they are bidding on. Moreover, an owner or tenant living in the house may or may not be cooperative about moving out.
Lenders use auction companies because they move inventory quickly. But bank-owned foreclosures aren’t the only type of property on the auction block. Sometimes homes are sold at HUD auctions, IRS auctions, “repo” auctions or sheriff’s auctions.
Following are steps you can take to buy REO homes at auction events.
Bank-owned properties offered at these foreclosure auctions are sold “as is,” meaning the buyer is responsible for any and all repairs. This means inspecting the property before the auction is critically important. Contact the real estate listing agent or auction company to schedule an appointment to inspect the property. Drive around the neighborhood and look at the quality of the community. Also, talk with adjacent property owners and get as much information about the neighborhood and the previous homeowners as possible. Walk through the house and determine in writing how much it will cost to repair the property. Add the repair costs to your auction bid.
Use Home ValueTrac to find out the latest market value of a property
Carefully read all the terms and conditions of the foreclosure auction before attending the real estate foreclosure auction, especially any fine print. This information can usually be found in the auction brochure or on the company’s website. If you’re not sure about the language in the terms and conditions, have your real estate agent or attorney explain it to you. Make sure you understand the bidder eligibility, financing, deposits, closing deadlines, closing costs, purchase agreements, disclosures and other bidding requirements. You will be legally bound by these contracts so make sure you understand them.
After inspecting several properties and narrowing down your short list of homes, investors and homebuyers should secure financing. While many live auctions have lenders available onsite, it is a good idea to have your financing prepared in advance of the auction. If you can’t secure financing on a property within the required timeframe, your deposit payment will be lost.
Many auctions — both online and live — require bidders to register either onsite or online. If you are bidding at a live auction, make sure to arrive early to get a good seat and to give you time to prepare for the auction. Check the auction company’s website before you attend a live auction and make sure the properties you are interested in bidding on are still available. Sometime foreclosed homes are sold prior to the auction.