How do Foreclosure Auctions Work? How to Find Properties, Research, and Bid

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Want to buy a house? With a foreclosure auction, homeownership might be just a few clicks (or hand raises) away.

These auctions bring the opportunity to buy properties quickly at potentially low prices. While investors are known to attend and bid at foreclosure auctions, you can do it, too.

The key is to know where to look and understand the dynamics of the process.

But how do foreclosure auctions work?

Teaming up with an experienced agent on foreclosure properties and auctions, we’ll answer this question and more — to prepare you for what to expect at a foreclosure auction.

A police officer standing at the top of the courthouse steps, where foreclosure auctions would happen.
Source: (Deelin / Pexels)

What is a foreclosure auction?

John Durham is a successful real estate agent in Henry County, Georgia, and has purchased homes at auction for 16 out of 20 years of his career as a real estate agent.

“I’ve been in business for 20 years, and [auctions] have always been extremely popular,” says Durham.

The purpose of the foreclosure auction is to recoup money for missed mortgage payments or tax liens. To help collect this money, the home is listed at a foreclosure auction where it’s bid on and (ideally) won.

Where can you find foreclosure auctions?

With the popularity of foreclosure auctions, you can find them in numerous places. Foreclosures are put up for auction both online and at live, in-person auction events.

Local newspapers can list upcoming foreclosures.

“In small towns, they have their own newspaper. That’s where people would put legal things like foreclosures.”

Durham says that in Georgia, foreclosures must be advertised for four weeks leading up to the sale. “If they miss one [advertisement], they have to start over the next month,” explains Durham.

You can also find foreclosure auctions on websites such as or city and county public records. An experienced real estate agent can also help you find upcoming foreclosure auctions.

Live foreclosure auctions

This is an in-person event where you must attend to bid on foreclosed properties. In many states, such as Georgia, the bidding takes place at the steps of the county courthouse. It is open to the public, and anyone can attend without registration.

“There is an attorney that walks up with a piece of paper and cries out ‘I’m crying out 123 Smith Street,’ and he starts reading off a piece of paper,” says Durham. “Then [the attorney] stops and says, ‘the opening bid is $100,000,’ and people bid until someone gets it.”

At a live auction, hundreds of properties can be auctioned off at one event.

When the auction is over, the total cost is the amount of your final bid. “If you know what you’re doing when you are buying it, then there are no extra fees,” says Durham.

Durham also notes that bidding gets quite competitive. “People will get into a bidding frenzy,” says Durham. He advises that you set your numbers in advance so your spending doesn’t get out of control.

Online foreclosure auctions

Remember the days of bidding on eBay? With online foreclosure auctions, you submit your offer digitally during a designated day and time.

Some online auctions require that you bid in increments. They may also allow you to see the amount of other bids, but sometimes you’ll be bidding without any idea how much money others are offering.

Overall, Durham recommends using the online auction option if you are new to the process or unsure whether you really want to buy a foreclosed property. That’s because it’s a lot easier to find out exactly what you’re buying.

“With an online type option, you’re having a normal closing,” says Durham. “The title’s been checked out, you can go inside the house and look at it and do all your due diligence. With the courthouse steps [auction], you literally do no due diligence.”

The online-style auction can also help save you from spending money blindly.

“An online option like a real estate owned (REO) property, you’re not spending any money into it,” says Durham. “You’re not spending any money into it until after you’re under contract and based on your inspection.”

Unlike live auctions, many auction websites charge a fee on top of the sale price. “If you bid [$100,000] there might be a 2% to 3% fee on top of that,” says Durham. This can sometimes push the home over its actual market value.

A group of people varying in races and genders sitting at what could be a foreclosure auction.
Source: (Antenna / Unsplash)

Types of bids at foreclosure auctions

When it comes to explaining the process of how foreclosure auctions work, it’s also important to know about the different types of bids.

Absolute bid

An absolute bid is where the highest price takes the home. Even if the highest bid is dramatically below market value, the highest bidder still wins the property.

Minimum bid

With a minimum bid, the highest bidder has to at least reach the set amount delineated by the lender. If the bid does not reach the minimum amount, they don’t get the house, and the title still belongs to the lender, which will most likely then list it as an REO property.

You will find minimum bids at both in-person and online auctions. Sometimes the minimum bid is the balance of the mortgage amount or tax liens. If a minimum bid isn’t met, the house won’t sell at auction.

Durham has a strategic approach to determining possible bid amounts. His team analyzes different elements of market research, including tax records. If there are tax liens against the property, you can guess the lender’s minimum bid by subtracting the amount owed on the lien from the market value of the home.

“We also have a spreadsheet that does some assumptions, like a 30-year fixed loan and 5% [interest].” From there, Durham uses his specific calculations to determine his maximum bid amount.

When it comes to determining the right amount for your bid, we recommend talking to an agent who is seasoned in the foreclosure process and who can help you calculate a solid bid for the market where you’re interested in buying a house.

A woman with glasses and brown hair at a library reading a book on how foreclosure auctions work.
Source: (Eliott Reyna / Unsplash)

How do you prepare for a foreclosure auction?

Once you locate the auction, it’s ill-advised to simply show up and bid. If you are serious about bidding on a home to buy it, Durham advises you to educate yourself about the process beforehand.

When you find yourself asking “how do foreclosure auctions work?” then resources are readily available. “You can pick up a million books,” says Durham. He also mentions there are consultants you can hire to teach you to buy at foreclosure auctions.

Some of the top-rated books on Amazon on buying foreclosed and auction properties at auction include:

Another aspect of education is doing due diligence for the property you want to buy. Order a preliminary title report where you can learn information such as existing liens and encumbrances, IRS liens, and past-due taxes.

Also, consider attending an auction just to observe. You can see the way people behave and how quickly they have to respond to get a bid in to the auctioneer.

If you are unsure about buying a foreclosure at auction, the best approach is to work with an experienced agent. They have access to MLS listings and can advise you on how to approach the auction — and this includes knowing what amount to spend.

“For someone who has never done [an auction] before, just handing out $100,000 or $200,000 of their money,  and they don’t know what they’re getting — it’s pretty scary,” says Durham.

Figure out your financing

With foreclosure auctions, cash payment is the general rule when you win the property.

You can pay for the house with a cashier’s check, which is issued by a bank. A cashier’s check proves that the funds are immediately available.

The rules around when you must pay the entire balance will vary between counties. For example, some counties require that you pay in $100,000 increments within 30 days.

“Let’s say you win a bid of $150,000,” explains Durham. “We take a bunch of $20,000 [cashier’s] checks and maybe some [$10,000 cashier’s checks]. They send us back our change pretty quickly.”

If you don’t have buckets of cash, don’t give up just yet. You can get financing for foreclosed and auction properties… but prepare for some potential obstacles, as well as long approval times from the bank. Securing a mortgage for a foreclosed house can take months.

If the auction does not allow for financing through a mortgage, you can consider a hard-money loan. This loan comes from a private investor or company that offers funds specifically for real estate. Note that these are often high-interest options to the tune of 18% and must typically be repaid within three to five years.

To get this type of loan, you must search for hard-money lenders in your area online. You can also ask a trusted real estate agent to help locate one. Despite the high interest rates and short repayment periods, the benefit to this option is receiving your funds quickly.

No matter how you decide to fund your new property, this arrangement should be ready before you place a bid. Most auctions require that you show proof that you can purchase and close on the home in the form of cash or other means.

Keep in mind that the property you buy at auction is at your own risk, and it’s unlikely that you will get your money back if something is wrong.  “The only disclosure option I know of is ‘buyer beware,’” says Durham. “Know what you’re buying because they’re not giving you your money back.”

Two middle aged women standing in front of a pink house with white shutters and balconies.
Source: (Julien Mussard / Unsplash)

Choose the best property for bidding

“You sit there and look at 100 properties; you’ve got to figure out which ones to try to buy,” says Durham.

One of the biggest issues with bidding on foreclosure properties is that you don’t know the entire condition of the home. Sometimes it’s even occupied when it goes up for auction.

“Generally, you kind of have to look at them from the street and decide if you want to buy it,” says Durham.

He gives some hints on what you can consider when viewing a property from the outside.

“We’re looking at the roof and the yard. Generally speaking, the outside is going to match the inside of the upkeep level,” says Durham. “If there are manicured yards, there’s a good chance the inside is pretty well taken care of. If there are broken down cars and [the property] looks terrible, we figure it’s probably going to be a pretty big rehab.”

Other red flags for foreclosure auctions include properties with environmental damage as well as low or inconsistent property values for neighboring homes.

However, you have to be careful about trespassing laws when you try to get a close look at an auction property. Be especially careful to avoid approaching the property if it’s occupied. “We’ve been chased down the street before,” cautions Durham.

Once you place the winning bid, it’s time to pay for the house. You will receive a date where you can move in or enter the home, and you are officially the owner.

When you choose your foreclosure and put in the winning bid, it’s on to the next adventure of making it a home or flipping it to sell. Proceed with caution if you are new to the auction game, and enlist the help of an agent to guide you through the process.

Header Image Source: (Andrei Stratu / Unsplash)