You’ve found a house you like and pulled a bid together. Now, you find yourself at the county courthouse, heart thumping as you raise your paddle in the air and bid on that house at auction.
You’ve probably heard that buying a house at auction can get you a really good deal, but if you’ve never attended a foreclosure auction before, then you might not know the first thing about how to bid! Here’s how to get your bid in order and how to bid on a house at auction so you can walk away as a homeowner.
“There are a lot of different types of auctions,” says Erick Monzo, a top-selling real estate agent in Detroit. “First, there’s your retail auction company, like Auction.com and Hudson and Marshall.” These were brought to life during the housing market crash, Monzo explains, because banks were looking for a quicker way to dispose of their assets.
When you participate in these types of auctions, the bidding is web-based, Monzo says. “They require your typical earnest money deposit, which is normally done through credit cards, and contrary to what you might hear, the majority of these auctions do still pay a buyer’s agent commission.”
Monzo says that every real estate auction house has a different platform when it comes to bidding. “If you’ve done 100 deals through Auction.com and you go over to Hudson and Marshall, it’s not the same,” he says. So even if you’re not new to real estate bidding but are new to a specific platform, you’ll want to do your research, so you can come to the table prepared.
A HUD auction is a foreclosure auction on homes that were financed by the Department of Housing and Urban Development (HUD), a federal agency instead of a private mortgage lender. “These auctions aren’t your eBay-type auctions,” says Monzo, “they are closed auctions.” That means that everyone who wants to bid can do so, but they bid without having any idea what the others are bidding. “Not even the listing agent knows,” Monzo says.
The bids are then sent to the asset manager via HUDhomestore.com, a secure website, and opened the next day in privacy. The auctioned home is awarded to the highest bidder.
Courthouse auctions take place at — you guessed it — the county courthouse “on a specific day of the week and at a specific time, every single month,” explains Monzo. “These are all homes that are being foreclosed on by a bank or whoever the note holder is,” he says.
Unlike retail and HUD auctions, if you want to bid at a courthouse auction, you must be physically present. If the auction is a large tax lien auction, each bidder will receive a paddle to raise when they want to bid, Monzo explains. If it’s a sheriff’s sale auction, all bidders gather in a room together and simply raise their hands when they want to place a bid.
Bidding at an auction
Step 1: Get your bid together
Most home auctions operate in cash, meaning you can’t buy a house with a mortgage, though one exception to that rule is a HUD auction. “Remember, though,” says Monzo, “These are typically distressed homes that don’t have utilities turned on, so even if the auction allows mortgages, a lot of the time the mortgages can’t close because of the condition of the home.”
So, in nearly all cases, you’ll need to get your cash in order before the auction takes place. It’s also not usually enough just to have the funds available; you often have to prove that you have the financial means to bid on a house before you can register for an auction, so make sure you have proof of funds or some other documentation.
At a courthouse auction, for example, Monzo says you must have a cashier’s check for the full asking price of the home. If you end up bidding over the asking price, the additional funds are due almost immediately, normally by the end of the day.
You’ll also need your earnest money available (usually 5% of the purchase price) after the auction, should you be lucky enough to be the highest bidder.
Step 2: Find your auction
Real estate auctions can happen at the county courthouse, at the property itself, or online. Monzo says that to find an upcoming auction, just check out some of the major traditional residential real estate websites, like Zillow or Realtor.com. “The auctions are all published there now,” he says.
After you’ve identified an auction that you are interested in, you’ll want to check to see whether it’s an absolute auction, meaning the holder of the note will accept any price; a minimum-bid auction, meaning you have to bid at least the minimum amount; or a reserve auction, where the winning bid is essentially an offer to the seller, who can decide to reject the offer if they think it’s too low. Knowing the type of auction you’ll be participating in will help you have a better idea of how much you might spend.
You can bid anytime before the bid closes in an online auction, but if you want to purchase an auction at the county courthouse, you’ll have to attend the auction in person and bid when the home you’re interested in comes up for sale.
Step 3: Register to bid
After you’ve identified the auction that you want to bid in, the next step is to register to bid at that auction. If you’re bidding at an in-person auction, bring your proof of funds with you so that you can register. If you’re bidding online, you may have to pay a deposit in order to be able to bid on homes.
As Monzo mentions above, at a courthouse or sheriff’s sale in-person auction, you’ll be given a bidder paddle to raise when the auctioneer reaches your desired price — or, it could be a silent auction, where everyone submits a bid separately and the home goes to the highest bidder. If you’re participating in a silent auction, make sure you bid your very best price, since you won’t have the opportunity to know what others are bidding.
Step 4: Listen!
This is the part of auction bidding where your listening skills come in. If you’re participating in an in-person auction, you don’t want to raise your paddle at the wrong time (or, heaven forbid, for the wrong house), so listen carefully and stay alert as the auction progresses.
When the auctioneer recites your price for the house you want to buy, raise your paddle, and stay alert so you don’t miss out on a chance to outbid a competitor. If there are multiple people bidding on the home you want, you’ll likely have to raise your paddle more than once to stay in the auction, but know what your top price is before you begin bidding so that you don’t get swept up in the moment and pay more than you want to during the auction.
Step 5: Fork over your earnest money
Congratulations, you got the house! Now it’s time to pay the earnest money. Earnest money is often due the same day or 24 hours after you bid, which is why you had to have it ready.
After paying your earnest money, a variety of things will happen depending on the type of auction you participated in.
For a retail auction (like Auction.com), the auction house will start preparing your title right away. “Closings are typically 30 to 60 days later,” Monzo says.
During a HUD auction, buyers paying in cash can close the deal in just a couple of weeks. If you’re mortgaging your HUD auction home, it will take about 30 to 45 days for the home to close.
At courthouse or sheriff’s sale auctions, the buyer cannot take possession of the home for six months, says Monzo. That’s because the homeowner may still be able to reclaim the property by paying the money owed on it. Should that happen, the homeowner must pay you back — with interest.
General tips for bidding on a house at auction
Before you bid on a house at auction, keep these tips in mind:
1. Try it out first
Attend a few auctions without intending to bid on anything; this will give you a sense of the cadence of these events.
2. Get there early
Auctions don’t often last a very long time! If you show up on time, you might miss it, so come early.
3. Check to see if you can view the home ahead of time
If you’re bidding with an auction company, Monzo says you’ll be able to see the home beforehand about half of the time, unless the home is owner-occupied and still in the redemption period.
If you’re bidding on a HUD home, you can walk through the home before the auction with a real estate agent, he says.
If you’re bidding on a courthouse or sheriff’s sale home, however, you won’t be able to see the home you’re bidding on — so do your due diligence to ensure you really want it.
Now that you’re prepared to bid on a house at auction, get out there and find your dream home!
Header Image Source: (Curtis Adams / Pexels)