If a home has gone into foreclosure, you may have the good fortune of buying it at auction. In other words, you buy it from the bank, who is probably asking less for the home than it’s worth. Many real estate investors get their investment homes this way, but you can use it to buy your owner-occupied property as well.
Keep reading to learn the steps to take to get through the process with ease.
Figure Out the Auction Type
First, you should find out how the auction will be conducted. There are live and online auctions. Live auctions are your typical auctions where there’s an auctioneer and people standing around bidding. Online auctions, take place over a series of days or even weeks rather than one day like the live version. No matter which type of auction you choose, you will have to take the same steps to prepare yourself.
Find an Auction
First, you must find a foreclosed home going up for auction. We recommend that you partner up with a knowledgeable real estate agent in the area. They are usually the first to hear about the foreclosure sales and when they are occurring.
You can do the research yourself online, but you might miss out on some good opportunities if you rely on this method alone. If you want to play a role, you can do your own research, but then use the expertise of the real estate agent along the way as well.
Do Your Research
Once you find a property, it’s time to play detective. You want to make sure you know everything about the property and the transaction that you can. A few key points include how much the seller owed on the mortgage and if there are any tax liens left behind. Of course, you’ll also want to know the fair market value for the home to determine if you are getting a good deal or not.
It’s a good idea to drive past the property as well. You won’t be able to see the inside, especially if the owners still occupy the property. But knowing what the outside looks like will give you an indication of what the inside looks like, as far as if it was kept up with or left in shambles.
Get Your Financing
Before you make a bid, you must know how you will finance the property. Are you paying cash for the home or will you need a mortgage? If you need a mortgage, you’ll want to get a preapproval and iron out any details ahead of time.
You should also check with your state/county to see if they allow time to get your financing in order. Some auctions expect payment in full via either cash or certified check 24 hours after you bid on the home. This obviously wouldn’t work if you had to secure mortgage financing, so you need to know this upfront.
Make sure you also have a decently sized amount of earnest money. Know in your mind how much you are willing to put down on the home and have that money read. Again, auctioneers will typically require this money fairly quickly after you win the bid on the home.
Bid on the Foreclosure
The next step is the most exciting – it’s time to bid. You can bid in person at a live auction and know almost right away if you win. Because it’s easy to get caught up in the excitement at a live auction, make sure you have a solid number in your mind to make sure you don’t overbid.
If you bid online, it could take weeks to find out if they accepted your bid. Whatever you do, be prepared. Once they let you know you won the bid, you have to act fast. You will only have a short amount of time to close on your financing and pay for the home.
Bidding on a foreclosure at an auction is exciting and overwhelming at the same time. Make sure you take your time, do your research, and know exactly what you are getting yourself into before you start. At the very least, make sure you prepare yourself with a decent cushion, especially if you haven’t seen the inside of the home. You are buying the home ‘as is,’ which means you will have to make the necessary repairs and pay for them yourself.