As the economy begins to tiptoe in a more positive direction, hesitant buyers are poking their heads out of their refuges and investigating the new real estate market. This strange and “new” real estate market consists of buyers looking for rock-bottom home prices. They’re willing to put in offers substantially below market value, and walk away from sellers that aren’t willing to negotiate. Many are looking for short sales and foreclosures; some are even buying a home at auction.
In the past, public auctions consisted of investors (this is where tales have emerged of houses being bought and sold for a mere few thousand dollars). While those deals are few and far between, buyers can still purchase homes well under market value. In order for the average homebuyer to walk away with a good investment, it is important to do all due diligence and know what to expect.
Find properties and look at them. Auction notices can be found in your local newspapers or you can use a real estate agent. The city or county recorder should also have the latest foreclosure auction schedule.
Confirm auction status, date, time, location and requirements. The current owner of a foreclosed property typically has a set number of days to pay off any debts owed on the property. If the owner is able to pay the defaulted amount, then the auction could be cancelled. Cancellations and postponements are announced at the time and location of the originally scheduled auction. Bidders are expected to bring the full amount they want to bid in the form of cash or cashier’s check, or a pre-determined percentage, usually 10 percent, of the bid amount in the form of cash or cashier’s check and pay the remainder of the amount within a certain time frame if they are the highest bidder.
Check the potential bargain. It’s important to research everything you can on a home.
- Outstanding loan balance
- Estimated market value
- Other property liens and loans the owner may have taken out
- History of ownership
- Your monthly expenses as a homeowner (mortgage payment, taxes, insurance, repairs, etc.).
In an ideal situation, get access to view the interior of the property, and take an inspector or contractor along to get an accurate estimate of repairs. Subtract all your costs as a buyer (loan balance, additional liens, repair costs) from the estimated market value of the property, and use that number as a basis for your bid. This is all public information so you can research on your own with the county recorder or consult a real estate agent. Remember, if you have the highest bid and decide not to buy, you will lose your deposit, similar to losing your earnest money in a traditional real estate transaction.
Determine your bid amount. A reasonable purchase amount at auction is typically 20 percent below the market value. Secure financing in advance; some jurisdictions won’t allow you to bid unless your financing is in place.
Bid at the auction. Bidding at an auction can be intimidating, especially if you’ve never done it before. It is recommended to attend at least one auction beforehand, to get first-hand experience on what to expect.
Take ownership. If you are the winning bidder:
- Make sure you get the necessary documents from the auctioneer to verify that you are the winning bidder.
- Clarify with the auctioneer and/or a real estate attorney what further steps need to be made before you take ownership and possession of the property.
The most important factor to remember about an auction is to do your due diligence. Finding out that a property you just purchased has multiple liens or severe defects can really mar your investment.
Josh Anderson is a Realtor with Keller Williams Realty in Nashville TN. If you have any questions about the real estate market or auctions, please call (615) 509-7000, email Josh@JoshAndersonRealEstate.com, or visit www.JoshAndersonRealEstate.com.