buying property in auction

Tales on the now wealthy landlords have it that their assets derive mostly from auction buying.

Although such stories may easily carry anyone away to jumping into the business, one has to also weigh in the many auction horror stories.

Buying foreclosure properties in auction offer a fast way to acquire real estate at a lower price, commonly by at least 15%, than prevailing market rates. Auctions sell both residential and commercial properties. It is suitable for fix-and-flipper and buy-and-hold investors who want to buy low and sell high.

How do properties end up in auction?

There are two basic reasons:

The buyer has defaulted in paying the mortgage on the agreed time, prompting the bank from which the buyer-borrower sought finance to notify the county recorder of the default to keep an eye on the situation. If the buyer doesn’t pay the remaining balance owed or fails to renegotiate the mortgage terms with the lender, the lender can put the home up for auction and force the homeowner out.

The buyer has faltered in its tax payments. As such, tax regulators such as county governments, instead of banks, come after the property.

Where to start looking

You can begin with the official websites of cities or municipalities where you’re eyeing to buy a property. However, these lists may not always be updated or accurate—some that have late payments are automatically on the list as subject to auctioning without finding out whether the borrower and the lender are working out a compromise to prevent the property from going to auction.

To verify the facts or obtain additional information, you can call the municipalities or go directly to their offices.

The online space is another market for property auction-buying. Some websites you should check out our PropertyAuctionAction, Auction House, UK Action List and Nethouseprices, among many others.

How to participate

To join, first register with the entity the holding the auction by providing requested information and complying with other registration requirements, which includes a refundable deposit of about 5% to 10% of the property’s expected selling price. Auctions also require the remaining balance for the total payment to be paid after 28 days.

The auction can be conducted in-person or online. If the former, be sure to arrive earlier, say, an hour ahead of the scheduled start, to have time to get the official board you will use for bidding.

Risks in buying real estate through auction

1. The fact that these properties are in auction already makes it fraught with risk

First things first when buying foreclosure properties in auction: make sure you have a clean title. Furthermore, since they had been occupied by someone who could not pay for even their primary obligations to keep the property under their possession, repairs and renovations most likely have been neglected.

Also, you might want to double-check whether someone holds claims, liens or second mortgages against the property.

2. Hire industry experts to estimate the overall cost to buy and keep or sell the property

Besides the purchase capital, other costs you should consider to include:

Repair costs: Descriptions in auction catalogues can be very misleading. Where it says refurbishments are needed, they may mean substantial repairs. As such, the window for inspection and viewing is a crucial phase to determine whether to forego your purchase. Some auctioneers won’t allow you to inspect the interior of the property. As such, you can automatically mark out auctions that prohibit inspections.

Holding costs: monthly cost to keep the property such as mortgage, taxes, insurance, and utilities.

Marketing costs: if you intend to sell off your property eventually, you should start considering how much you can set aside for marketing materials and campaigns

3. Don’t overbid

Don’t rely solely on the initial guide price auctioneers have set. Interview local real estate agents or neighbours, compare it with other properties in the area so you can get a glimpse of what is a reasonably practical price range in which a property can be bought.

However, monitor the guide price on the days leading up to auction day. If it increases, it means the property is drawing in much interest. Know where that interest is stemming from and determine whether such factors are worth considering such as location, or are reflecting only a hype.

4. Scrutinise the legal package

A legal package contains all pertinent documents related to the property, such as special conditions of sale, the land registry map, leases (if applicable), and office copy entries, among others. You can consult experts, as referred by family or friends or those known in the industry, to look into the documents to see if there are any loopholes.

If you win the bid, do not do any actual work pending the turnover of the actual title certificate, which usually takes ten days. During this period, the original owner hs the chance to file an objection to the sale and pay the amount owed in full to retain their rights to the property.

In all, buying foreclosure properties in auction is a riskier avenue to buy real estate compared to traditional ways; it can be your best deal or worst pitfall. However, as with all investment pursuits, conducting thorough research will give you the bigger chance of succeeding.