Are you thinking of bidding at a foreclosure auction? Here are some tips to help you prepare.
Foreclosure auctions — conducted on courthouse steps, in convention centers across the country and, increasingly, online — can be intimidating. The trick to avoiding foreclosure auction pitfalls is to do your homework.
1. Understanding the process
Many buyers never attended a foreclosure auction. There are two options: a large auction where dozens of properties will be sold from a large geographical area, or a smaller trustee auction. It’s a smart idea to attend as an observer if you are considering buying a foreclosure.
- Observe the buyers. Sometimes auctions can be as much about theatrics than business transactions. Some buyers may be seen in suits standing next to the auctioneer, trying to convince other bidders that they are representing the lender. This could scare away other attendees from a bidding battle.
- Find out requirements. Contact an attorney or auctioneer to find out how much money you will need to bring to the auction. This varies from one state to another. Many auctions require bidders to bring along a certified check for $5,000, made payable to the auction company. This is proof that the bidder intended to purchase the item. The winning bidder will sign the check over to the auction firm, while the losing bidders will simply redeposit their checks.
Representatives from large mortgage lenders will be present at larger auctions. The National Auction Group and Williams & Williams charge either a flat fee, or a percentage of the sale price.
In some cases, you will need to bring a portion of the winning bid price as certified funds. The balance is due in 30 day. There are also states where the entire amount is due on the day of the sale.
2. Do your research
In most areas, notices about upcoming auctions can be found online or in the local newspaper. Zillow also provides information about foreclosure auctions on homes, including the location, date, and time. Be aware that auction dates often change or are postponed, so be sure to confirm specifics with the lender’s attorney or the trustee.
Note that the federal moratorium on evictions and foreclosures on single-family homes has been extended to June 30 — and many states have temporarily banned foreclosures — which may affect inventory in your area.
- Narrow your area. Choose a few neighborhoods to investigate. You can drive by the auction properties in those areas and observe the area.
- Study the home. You won’t likely be able get in, but you should still be able tell if there are any people living there. It is possible that the home is occupied. However, this is not a guarantee. What is the exterior like? The house will need cosmetic upgrades, such as new carpet, paint, appliances, and kitchen cabinets.
3. Know what you can offer
If you win this property at an auction, will it be your home? It can be fixed up and resold. You can rent it out. Your plans for the property will impact your maximum bid price.
- Compare. See what similar properties have sold for in the past months.
- Research. Use Zillow’s Foreclosure Estimate for an estimate of the price at which your home will likely sell.
- Add it up. Calculate necessary improvements, based on a worst-case scenario (replacing plumbing, electrical, etc.).
Remember that your bid at the auction will be final. There is no back out and there is no home inspection waiver. If you think basic repairs for a house will run $15,000, you don’t want to end up paying $130,000 at auction if the move-in-ready home next door is listed at $140,000.
Make a set of photos and information sheets for each property, along with your top offer, to avoid any confusion on auction day.
4. Follow expert advice
Here’s some advice to make the most of your experience
- Arrive on time. Most auctions don’t last long; if you’re five or 10 minutes late, you may miss the whole thing.
- Settle in quickly. The first properties that are offered often sell at a lower price because bidders are trying out pricing patterns. You may be able to find your dream property if it is one of the first to go under the hammer.
- Listen up. The auctioneer may say something like, “This property is sold subjected to all liens und encumbrances.” This means that the winning bidder will be responsible for past-due taxes as well as liens imposed either by contractors or the Internal Revenue Service. Veteran bidders do title searches on properties they are interested in.
- Know your limits. Don’t get caught up in a bidding war. Don’t get caught in a bidding war. Decide what you are willing to pay before the auction starts.