Real estate auctions can be enticing if you’re looking for a bargain and don’t mind some extra legwork. You’ll have to learn how the auction process works, as well as track down properties and navigate the purchase without a real estate agent.
After the sale, the property might need to be rehabbed, and you might even be responsible for kicking out tenants. You might also have to pay off additional property liens.
What is a real estate auction?
A real estate auction involves the public sale of a property through competitive bidding.
The most common reasons for real estate auctions include:
- Mortgage foreclosures
- Unpaid property taxes
- Unpaid homeowners association fees
- Estate sales
Auctions might be held in person or online. They’re typically run by the sheriff or another county official, but there are also companies that specialize in auctioning real estate on behalf of banks, governments, and estates.
Pros and cons of buying at auction
Buying a home at auction is a completely different experience from buying a home the traditional way. The type of person who might want to try buying their property via auction is often financially savvy and can afford the risks that come with an auctioned home.
Before you commit to buying a home at auction, make sure you understand the benefits and drawbacks of the process.
Pros
- It’s possible to get a house for cheap. The biggest potential benefit of buying a home at a real estate auction is that you might get a good deal on the purchase price. In theory, you can purchase an auction property for as little as the amount owed to a tax authority, mortgage lender, or HOA, which might only be a few thousand dollars on a property worth a few hundred thousand dollars.
- There might be less competition for properties. It’s easy to buy a home by searching real estate listing websites and hiring an agent who can guide you through the traditional purchasing process. Fewer people know how to buy a property through an auction. Circumstances will vary by location and depend on factors such as local inventory and investor activity.
Cons
- You might not know much about the property’s condition. When you buy an auction property, you might not be able to conduct a home inspection ahead of time. You’ll be stuck with whatever expensive problems you get — including dealing with any liens on the property — because the property will be sold as-is. However, some sellers do allow for inspections ahead of the auction date.
- You’ll need cash. To gain bidding privileges, you might need to pay a refundable cash deposit before the auction begins. Then, you might have to pay for your purchase via cash, certified check, or wire transfer immediately after the auction ends or within a few hours to a few days. Less commonly, you might be able to finance the purchase.
How to find real estate auctions
You can locate real estate auctions by searching online for “real estate auction” plus the name of the county you want to buy property in.
Here are some common places you’ll find online listings and auction details:
- Auction websites and real estate websites, such as Bid4Assets, Auction.com, and Hubzu
- County court websites
- County sheriff websites
- County treasurer or tax collector websites
- The United States Treasury Department’s seized real property auctions website
How buying a house at auction works
Before COVID-19, in-person real estate auctions were common. During the pandemic, however, some counties have been canceling their auctions or moving them online.
In addition, the suspension of mortgage foreclosures provided for by the CARES Act has limited the number of properties for auction.
You do not usually need a real estate agent to purchase a home via auction. However, they might be able to help you locate, research, and even bid on properties, as well as finalize the sale.
If you find a home up for auction that you’re interested in, follow these steps:
Step 1: Do your research
Some auction properties allow for inspections by appointment. However, property inspections are not always allowed on auction properties, especially occupied ones. Not being able to inspect a property before purchase puts you at a major disadvantage.
The auction entity will advise bidders to investigate any title or lien issues before bidding. A property that’s being auctioned due to unpaid taxes might also have a lien against it from delinquent HOA dues or an unpaid contractor.
Tip: Check with title companies to see whether they will issue title insurance for the property and, if so, what the policy’s limitations will be.
Step 2: Find out if you can finance the home
It might be possible to finance an auction property with a home loan. You won’t be able to make an offer contingent on mortgage financing, though, so you’ll have to get pre-approved.
Discuss your plans with the seller and lender to see how quickly you’d be able to close the loan and pay the seller if you win. A property that’s not safe to live in will require some type of home improvement loan.
Tip: Some auctions will only accept payment via cash or hard money loan. You might be able to do a cash-out refinance to mortgage the property afterward, but that won’t cover your up-front costs.
Whether you’re researching rates or looking to buy a home, Credible is here to help. You can compare our partner lenders in just a few minutes using the table below.
Step 3: Decide how much you’re willing to bid
First, determine how much cash you can afford to spend on the property since many house auctions are cash only.
Next, look at what other properties in the area have sold for recently. See how their prices compare to the home you’re interested in.
Tip: To account for unknown expenses, don’t set your maximum bid at 100% of the property’s value. Discount it by some amount so that your purchase price plus any bidder’s fees and costs to repair the property or clear the title will not put you over your budget.
For example, you might want to bid no more than 80% of what similar homes in good condition have sold for.
However, there’s no hard and fast rule on what to pay. It depends on your budget, risk tolerance, and plans for the property. Don’t let emotions push you beyond your price range.
Step 4: Make your deposit
To show that you’re serious, you’ll have to make a cash deposit to participate in the auction. Deposit requirements vary, however.
For example: You might have to put down $2,500 or 5% of the starting bid, whichever is higher. A cashier’s check or wire transfer might be allowed in lieu of cash.
For an online auction, you might have to provide a credit card number. The seller might reserve the right to charge a cancellation fee to your card if you win an auction but don’t pay for the property.
Step 5: Make your bid
If you’re the winning bidder, you’ll have to meet key payment deadlines to secure your property deed. A deposit will be due shortly after the auction closes. The balance will be due shortly after that.
For example: If you win an online auction, you might have to deposit 10% of your winning bid, minus the deposit you paid at registration, within three business days. Then, you might have another three business days to pay the balance.
You might also owe a bidder’s fee of 5% to 10% of the purchase price to the auctioning entity. Closing costs might apply, too.
If you fail to meet the payment deadlines, the following might occur:
- The seller might cancel your contract
- You’ll lose your deposit
- You might have to pay the difference if the home is later sold at auction for a greater price
- You’ll lose bidding privileges with the auction entity either temporarily or permanently
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