Buy a House at Auction

It can be tempting to buy a house at auction. Home buyers are lured by the chance of winning the bid at less than market value, or being able to afford a larger, nicer home than they could normally afford through the traditional housing market. Most home auctions result after the lender forecloses on the property. Sometimes auctions are run for the owner as a creative means of selling his home in a sluggish market. Heirs sometimes sell houses at auctions to settle estates.

Steps

  1. Contact a lawyer that specializes in real estate transactions for advice and assistance if you are considering buying a house at auction.
    • Purchasing a house at auction is risky. You should not attempt it without an attorney's help unless you have experience purchasing property at auction.
    • If the sale is a foreclosure auction run by the lender, the property is often still in foreclosure. In addition to the cost of the home, you may need to settle unpaid tax bills if you win. An attorney can help you find out all terms and outstanding debt attached to the property before the auction.
    • Property liens and outstanding taxes may also exist on houses auctioned by owners or as part of an estate settlement. The auctioneer or property owner is legally responsible for disclosing this information to all interested parties prior to accepting bids.
  2. Locate property auctions in the area you want to buy in.
    • Check with local realty offices to find out if they have listings for area houses up for auction. Lenders sometimes use real estate brokers to oversee the auctioning of the home, but not all real estate agents specialize in property auctions.
    • Watch your local newspaper's classified sections under both the "Real Estate" and the "Auction" listings.
    • Contact auctioneers in your area who specialize in real estate auctions, or call auctioneers' offices to find out if they hold house auctions.
    • Pay attention when driving for signs in front properties, especially if a house you want to buy is sitting empty. If the house is coming to auction, there should be a sign out front announcing the date of the auction and listing a phone number where you can call for more information.
  3. Attend several local house auctions in the area where you want to buy, whether you are interested in the particular property or not, so you can watch and get a feel for the auction process.
    • Read the terms and conditions of the auction. Notice what fees the auctioneer charges and any money the winning bidder must pay in addition to the winning bid price.
    • Pay attention to the auctioneer's selling practice and how he calls for bids. Watch the crowd carefully to spot who is bidding and notice how they bid. Some auctioneers give out auction paddles or bid cards for bidders to use. After a bidder enters into the bidding, she sometimes indicates her continued bidding to the auctioneer with a head nod or hand movement.
  4. Get pre-qualified for a mortgage from a bank or mortgage lender so you know how much buying power you have.
  5. Do a full title search done on a property if you spot a house coming to auction that you think you would like to bid on.
    • A title search will locate outstanding debts, including unpaid taxes and property liens, as well as previous construction debts that can reveal unknown condition issues.
    • Most reputable auctioneers provide a current title assessment that indicates that the property is free of all debt. Or, they will disclose the amount of outstanding debt that the new owner must assume, in addition to the house's bid price.
    • You can have an attorney do a title search for you if the auctioneer does not provide one, or you question the credibility of the auction company.
  6. Visit or phone the town hall that governs the property you want to buy. Inquire about town by-laws, ordinances, zoning issues and toxic or hazardous waste issues that may affect your purchase decisions.
  7. Decide what your maximum bid price is and stick to it. Do not allow yourself to get caught up in the bidding and go over the price you decided you are willing to pay.



Tips

  • Purchasing a foreclosed home from a lender directly or on the traditional real estate market is less risky than buying a foreclosed home at auction because, in a longer process, important information about the home may come to light.

Warnings

  • If you purchase property at a foreclosure auction, the original owners may exercise their right to recover the home by paying off their dept. The IRS also allows a property owner to redeem the property if back taxes are paid within 120 days. The lender does not have to wait this period before auctioning off the house.

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Sources and Citations

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