Buying a home at a real estate auction can prove to be very profitable, if done right. Home auctions have become a very popular way of buying and selling quicker than through the regular process. Auctions attract plenty of home buyers and investors who are looking to get a good deal, and can also be a great opportunity for sellers who need to make a quick sale.
Home auctions are conducted by government agencies or specialized firms who act as an intermediary between the buyer and the seller, making it unnecessary for a real estate agent to represent you. Homes bought at real estate auctions have the potential of being the best real estate deals you can find, but they are also the riskiest way of buying a home. Properties can be bought with discounts of up to 70 percent of their housing market value, but there is also the possibility of ending up with a property that will cost you more than the market value because you have to invest significantly into repairs.
The Home Auction Process
There are three types of auctions used to sell homes. One type is the absolute auction, in which the buyer who offers the largest amount of money gets to buy the property. The sale is guaranteed at an absolute auction, so this will attract a large number of home buyers and investors. Another type of auction is the one who uses a minimum bid, minimizing the seller’s risk. The third type of auction is the one where a reserve can be used, allowing the seller to accept or refuse an offer, based on the amount offered. This way, the seller has more control over the selling price, but the auction won’t attract as many potential buyers.
Home auctions are normally held by professional auction firms. In order to recuperate some of the taxes and cost of maintaining foreclosed properties, the auctions are also hosted by banks or government agencies. Auction companies can organize auctions for real estate agents, banks, or individuals who want to sell quicker than it would normally take to sell a home. The auction organizer will normally receive a small percent of the final sale price.
Buyers who take part in a home auction have a chance of making a great deal, and purchasing a home at a price much lower than market value. Another benefit is that there is very little negotiation involved, and the whole purchase time is a lot lower than when buying a home the conventional way. The seller also has the advantage of selling his or her property a lot faster than by going through the regular home selling process. All the people who attend the home auction are potential buyers and, because homes are sold “as is”, the seller isn’t required to make appointments and show the home.
Steps to Making Sure that You Get the Home You Want
Doing your homework before attending a home auction and researching the properties that are being sold can make the difference between getting the home that you want and ending up with a home that is not what you were looking for. Also, because the homes are sold “as is”, doing some prior research will ensure that you don’t have to pay a fortune in repairs after you have bought the home. Here are some steps to follow when buying a home at a real estate auction:
- Make sure you have financing readily available before attending the auction. By doing this, you will know exactly how much you can spend, helping you narrow down the properties that you can bid on.
- Find a home that meets your criteria. Obtain a list of all the auctioned properties and research them until you find something that meets your needs. If you’re not familiar with how to evaluate a home and estimate repair costs, then hiring a professional is something that will probably save you a lot of money.
- Inspect the home before bidding. The description in the auction catalog might not be too accurate, so visiting the property and seeing it with your own eyes is always a better choice. You can also talk to the owners if they are willing to answer some of your questions.
- Check for second mortgages and if taxes are owed on the property. The IRS can seize a property even after the auction sale was completed, if there are any taxes owed by the previous owners.
- Bring with you the amount of money that you will have to put down as deposit. Most auctions require a $10,000 or a 10 percent deposit, which is nonrefundable.
- If everything goes smoothly and your bid wins, you will have to sign a purchase contract and a bid confirmation. Within 30 days of winning the auction, the closing will take place and the property title will be transferred from the seller to you.
Home auctions provide an excellent opportunity for finding a great investment property or a home for yourself at a great price. But before attending such an event, you will have to make sure you understand the process of buying a home through a home auction, and what risks this involves. If you have done your homework, you will find that home auctions provide great advantages for all parties involved, giving you the chance of becoming a home buyer quicker and for less money.