So you want to invest in profitable property or simply buy a new home at a bargain price? If so, you want to consider property auctions.
Properties sold at auction are often owned by mortgage lenders after repossessions, former council/housing association homes or have been empty for some time after the owner passed away.
In each case, the owner has put the property on auction for a quick sale and this can lead to some great deals on the market value.
Finding an auction
As auctions tend to cater to property professionals, rather than the general public, advertising and awareness of auction houses are limited.
A good place to start is looking through the telephone directory, yellow pages or searching on Google or Yahoo. There are many websites available that advertise home auctions. A couple of sites are Hubzu.com and Auction.com but there are literally dozens. There are also County Foreclosure Auctions. Be aware that it can be a bit of a “Good Ole Boys” club and that each county may have different auction days and totally different rules.
There are a couple of sites that you bid only online such as Hubzu.com and Auction.com to name a couple, but there are literally dozens more out there.
Another good tip is to keep an eye out for For Sale signs outside homes. Where the board says ‘for sale by auction’, call the telephone number provided. You will either get through to an estate agent acting on behalf of the auction house, or you will get through to the auction house directly.
If you get through to an estate agent, ask them for the contact details of the auction house. The estate agent may be reluctant to do this, so it is worth being persistent.
Once you are able to make contact with the auction house, ask to be put on their mailing list. Although there is likely to be a charge for this, you will begin to receive details of properties due for sale.
Before you bid
Many times you aren’t able to see the inside of the property you plan to buy. Make sure you know what you are buying. It’s a good idea to do as much due diligence beforehand, drive by the house, talk to neighbors, check websites etc. Make sure someone is not still living in the home. (It happens!) Also, make sure that you are buying the 1st lien and that all other liens and judgments (collection agencies, mechanics liens, city judgments, etc.)are satisfied. Depending on your exit strategy, make sure you establish a budget of what it will cost to fix it up so you’ll have a good idea of how much you can pay for the property.
Having identified the property that you want to buy, you will need to arrange the financing. For most people, this will mean approaching a mortgage lender and it is important to do this in advance of the auction. Not all mortgage lenders will loan on these types of properties, so make sure you have lined up funding with someone such as a private or commercial hard money lender.
Remember once you win a bid, you are legally bound to purchase the property and you need to be able to pay within a set number of days. In county foreclosure auctions most times the property needs to be paid for immediately or at least the same day.
The mortgage lender will require a basic valuation of the property, but it is advisable to invest in a full survey as the property may be at auction due to structural problems, which the basic survey would not pick up.
Important! Before bidding for your desired property, you may want to attend a few auctions to get a better idea of the experience.
Winning your bid
Set yourself a price limit, but do not get carried away and bid beyond it. Having had a valuation done, you will have a good idea of the market value and should not go above the amount agreed with your mortgage lender. Many auction houses also charge an auction fee such as 5% above and beyond the purchase price, so make sure you budget for that also.
If your bid is successful, you will be legally bound to purchase the property and will need to put down a deposit of the property’s selling price if not pay for it immediately. You will be asked to sign a contract, which you would have seen before the auction and the seller will be legally bound to complete on the day.
Finally, you will need to pay the remainder of the selling price within an agreed period.
Congratulations, you have just picked up an auction deal! Time to get to work!
Attorney William ("Bill") Bronchick, host of Legalwiz.com, has authored six best-selling books and is sought nationwide for his 25+ years of real estate and legal knowledge. He has been interviewed by numerous media outlets, such as CNBC, TIME Magazine, USA Today, Investor Business Daily, Forbes, and the LA Times, to name a few. William Bronchick is the co-founder and past President of the Colorado Association of Real Estate Investors and the Executive Director and founder of the College of American Real Estate Investors. Click on the "About" link above for more information on William Bronchick. Frank Pulley is an experienced real estate investor and foreclosure specialist. He is the director of William Bronchick's Coaching and Mentoring Programs. For more info, contact [email protected]