Crucial Things to Know About Real Estate Auctions

Have you picked up a local newspaper and noticed ads for property auctions? Has an auction been something you have considered?

Some potential home buyers are turning to auctions due to a lack of housing inventory.

Choosing an auction for houses can be attractive if you want to save on your next home. But while this can seem like a great way to save money, finding a bargain isn’t as easy as it might appear.

It can still be a good time to buy because there may be less competition in some circumstances. These homes will not be listed for sale by the bank unless someone does not become a winning bidder.

They are considered off-market properties and are often acquired by real estate investors or contractors.

There also can be significant risks with real estate auctions. We will examine some essential things to consider before attending a property auction.

Why Do Owners Sell Houses at Auction?

Selling a home at auction isn’t usually the choice of the homeowner. A property normally finds its way into the auctions because of foreclosure or a failure to pay real estate property taxes.

If a homeowner is behind on their mortgage payments, after a certain amount of time, the lender will begin foreclosure proceedings. This can lead to the home being listed for sale in an auction.

The home might be auctioned if the owner doesn’t pay their property taxes. A tax lien could be put on the home, and this lien can be auctioned off. A winning bidder will then collect the debt from the homeowner. If the owner still doesn’t pay, they can foreclose on the home.

Homes with unpaid property taxes can also be subject to a tax deed sale. This means the title is sold at auction, and the home has a new owner.

What Happens During an Auction?

What happens during an action depends on the type of auction and the bids allowed.

Different Types of Auction

Auctions can be online or in person and can have different sale rules.

Absolute Auctions

This auction means the highest bidder will win, no matter the bid amount. These auctions don’t have reserves, so you could buy a house for just a dollar. Sales are also final, so the seller can’t back out if the home sells for lower than expected.

Minimum Bid

With this auction, there will be a minimum bid that will be announced before bidding begins. This amount will often be the balance owed to the lender or the property taxes due when there is a lien.

The sale will be final as long as the minimum bid is met.

Reserve Auctions

Bids in this auction type are more like offers that can be accepted or rejected. While the seller might have a minimum amount they want for the home, this isn’t revealed. This can result in higher bids than they would have otherwise received.

Bid Types

Open

With open bids, everyone can see how the bidding stands. This can allow bidders to win with lowball bids, but you can also lead to bidding wars.

Blind

With these bids, only the seller knows how much is offered. Though this can lead to less competition, sometimes the bids are higher.

How Much Should You Bid During an Auction?

To ensure you don't bid too much but enough to secure the property you want, you need to know the local real estate market and your costs if you win.

If the home needs renovation, how much will that cost? You need to understand how much the home will be worth when renovations are complete to avoid overbidding.

Why You Should Consider Buying at an Auction

There are bargains to be had when buying a home at auction. When the lender places a house in an auction, they want to recoup the balance of the mortgage and their costs, so homes can sell for less.

Why Auctions Can Be Riskier

Even if you think you’ve got a bargain, there could be problems. Houses are sold as-is through the auction, and this could mean the property has issues that a home inspection would have uncovered. There could also still be tenants or previous homeowners in the property for you to deal with.

You will normally need to pay in cash when buying at an auction. Though it is possible to finance the purchase, you must show you have the funds to buy to qualify as a bidder.

Winning an auction also means you will have fewer protections when compared to traditional purchases. The seller doesn’t have to make a disclosure statement, and you won’t have much access to the home before the auction.

You will need to check for liens on the title. While there could be liens that were the reason the home is at auction, you need to find out if there are any other liens. If there are, you will be responsible for them when you become the owner.

A property title search should never be skipped when buying a house at auction. Doing so could cause devasting financial circumstances. You could easily get stuck with someone's problems.

Make sure you always speak to a real estate attorney ahead of time to get a rundown on any potential hitches with the title.

Final Thoughts on Property Auctions

While buying your next home at auction can be appealing, many risks are involved. Researching the property before bidding can minimize these risks, though you can’t remove them completely.