How To Score a Bargain At a Foreclosure Auction

  • September 7, 2008
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Jordana_Giorgio from Jordana_Giorgio (and 4 others)

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You can get a real steal at a house foreclosure sale—or you can overpay for a money pit. Here’s how to avoid the latter.

You Will Need

  • Knowledge of how auctions work
  • Low expectations
  • Time to research and inspect properties
  • Cash for a 5% deposit
  • Pre-approved financing
  • An expensive outfit
  • A copy of the auction rules
How To Score a Bargain At a Foreclosure Auction: Know your auctions

Step 1: Know your auctions

Know your auctions. At a sheriff’s, trustee’s, or courthouse auction, you can’t inspect the property in advance; no information is provided on the property; you’ll need to pay much or all of your bid on the spot, in cash or a cashier’s check; and it will be your problem to evict the tenants! But this is where you’ll find the deep discounts.

How To Score a Bargain At a Foreclosure Auction: Play it safe

Step 2: Play it safe

If you want to play it safe, go to an auction house sale. The bank already owns these properties (so you won’t have to kick anyone out), and you’re usually allowed to inspect the premises beforehand. But this comfort level comes at a price—you’ll typically pay 90% to 95% of the market value.

How To Score a Bargain At a Foreclosure Auction: Expect the worst

Step 3: Expect the worst

Expect the worst with any house you buy at auction. If a homeowner couldn’t afford his mortgage, it’s reasonable to expect he wasn’t keeping up with maintenance and repairs, either.

Be aware that homeowners who are forced out of their houses sometimes express their bitterness by taking with them anything that isn’t nailed down, leading to huge (and unanticipated) repair bills for the new owner.

How To Score a Bargain At a Foreclosure Auction: Do a drive-through

Step 4: Do a drive-through

Drive through the neighborhood of any foreclosed home you’re considering. If the area is teeming with foreclosure signs, prices are likely to fall even farther. It also may be the sign of an area on the decline.

How To Score a Bargain At a Foreclosure Auction: Check what you can

Step 5: Check what you can

Check out as much as you can about the house in advance of the auction. If you’re allowed to do an inspection, take a contractor with you; he’ll be able to give you a ballpark number on the repairs you’re looking at. Check if there are any liens on the home. Review the title search. Know what other homes in the area are worth.

How To Score a Bargain At a Foreclosure Auction: Have cash

Step 6: Have cash

Be prepared to pay on the spot a 5% deposit, in cash or a cashier’s check, if you have the winning bid at an auction house sale. At a sheriff’s sale, you might have to pony up the full amount.

Have realistic expectations. Banks aren’t in the business of giving away homes, so if a price sounds too good to be true, it probably is.

How To Score a Bargain At a Foreclosure Auction: Come with pre-approved financing

Step 7: Come with pre-approved financing

Come with pre-approved financing, even if the auction doesn’t demand it. If you make the winning bid and then find you can’t get financing, you’ll still be legally responsible for paying 25% of your bid!

How To Score a Bargain At a Foreclosure Auction: Look affluent

Step 8: Look affluent

Attend the auction in your most expensive clothes. It will trick other buyers into thinking there’s no point in getting into a bidding war with you.

How To Score a Bargain At a Foreclosure Auction: Set a limit

Step 9: Set a limit

Set a limit as to what you’ll bid so you don’t end up overpaying for a house simply because you got caught up in the heat of the moment.

How To Score a Bargain At a Foreclosure Auction: Avoid nasty surprises

Step 10: Avoid nasty surprises

Know the rules of your auction. If you win a bid, do you have time to change your mind, or will you have to pay a penalty if you back out? Is there a “reserve amount”—an amount below which the owner does not have to sell, even if you won the bidding? Is there a “buyer premium”—an additional 5% to 10% you have to pay the auction house?

How To Score a Bargain At a Foreclosure Auction: Jump right in

Step 11: Jump right in

Jump right in when the bidding starts—assuming you like the house. Homes sold at the beginning of an auction typically go for less money than those sold at the end.

Due to the 2007 real estate market crash, the Senate voted to give a $7,000 tax credit to anybody who buys a foreclosed home.

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Comments (2)

cmemove

very good instruction. timing is great. valuable.

over 3 years ago by cmemove

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SeattleJim

Great video! Lots of good advice here. Only thing I would add is - ALL REAL ESTATE IS LOCAL. This is particularly true about auctions. Some of these suggestions may not fit some markets. Here in Seattle, the downtown condo auction market is heated, but each one is unique and some of these do not apply!

over 2 years ago by SeattleJim

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