It\u2019s a sunny afternoon, and you\u2019re surrounded by an excited crowd. There\u2019s a nervous energy as the unmistakable sound of an auctioneer\u2019s chant fills the air, punctuated by a firm, \u201cGoing once, going twice, SOLD!\u201d If you know anything about how to buy a house at auction, then you know that someone just became a homeowner.<\/p>\n
Though it\u2019s a less conventional path to homeownership, buying a house at auction isn\u2019t as unusual as it may sound. Whether you\u2019re looking for a new home for yourself, or if you\u2019re just getting started in real estate investing<\/a>, auctions are an action-packed way to (potentially!) score a great deal.<\/p>\n Since there are a few tricky caveats \u2014 you\u2019ll need to manage your expectations and arrive well-prepared \u2014 we\u2019re taking a deep dive into how to buy a house at auction with the help of real estate experts like J. Perrin Cornell<\/a>, a top agent in Wenatchee<\/a>, Washington, who works with 82% more single-family homes than the average agent in his area. From getting ready for auction day to what first-time auction buyers should really<\/i> know, we\u2019re covering it all.<\/p>\n Let the bidding begin!<\/p>\n In most cases, houses at auctions are foreclosures<\/a>. This means that the homeowner stopped making payments on their mortgage, and the bank seized the property to recoup the funds.<\/p>\n Given the various types of mortgages<\/a> that are available, the auction process<\/a> may differ depending on whether the loan on the house up for auction was government-backed<\/a> or a conventional loan.<\/p>\n There are also tax auctions<\/a>, wherein the IRS has seized a home due to unpaid property taxes and is now attempting to recover losses.<\/p>\n Like auctions for just about any other item you can think of, home auctions can take place either in-person or online.<\/p>\n Live, in-person auctions are often held at the county courthouse, but \u2014 perhaps unsurprisingly \u2014 counties are increasingly turning to online auctions for the time-saving efficiency. While these auctions are not usually front-page news on county websites, they\u2019re not terribly difficult to find<\/a>.<\/p>\n \u201cYou might search the name of your city and state, along with keyword phrases like \u2018public records\u2019 and \u2018foreclosure auction,\u2019 and easily find eligible listings that way,\u201d suggests Ben Reynolds<\/a>, an investment expert based in Houston, Texas. He notes that these listings will generally indicate whether a home has been cleared for a scheduled auction and, if so, its estimated resale value.<\/p>\n Reynolds adds that \u201cusing a real estate agent<\/a> who\u2019s familiar with foreclosures in your local area may be valuable and more time-efficient\u201d than simply searching online.<\/p>\n Meanwhile, homes that were purchased with a government-backed loan will almost certainly be sold via online auction and can be found through the U.S. Department of Housing and Urban Development (HUD) homes for sale<\/a> portal.<\/p>\n If you\u2019ve ever done any bidding on eBay<\/a> or similar auction platforms, you\u2019ve probably seen terms like \u201cminimum bid\u201d and \u201creserve.\u201d These are applicable in the home auction world, too.<\/p>\n An absolute auction is the quintessential auction type. The item in question \u2014 in our case, a house \u2014 is sold to the highest bidder, no matter what their bid price. Since there is no reserve price (more on that in a second), absolute auctions start at $0 and let the bidding process unfold from there.<\/p>\n Unlike an absolute auction, a minimum-bid auction begins with a certain number in mind. This is usually the outstanding balance owed on the defaulted mortgage, but it may also include tax liens<\/a> and other fees associated with the bank\u2019s expenses in servicing the property.<\/p>\n Reserve auctions are similar to minimum-bid auctions in that there is a fixed price that must be met to finalize the sale, but a reserve price is kept under wraps, while a minimum bid is clearly stated.<\/p>\n A reserve auction helps the seller potentially earn more because bidders won\u2019t know exactly what the seller has in mind, nor what other bidders have offered.<\/p>\n First things first, you\u2019ll need to have a plan to pay for the home.<\/p>\n If you have the cash on hand to cover your purchase \u2014 great! But if you\u2019ll need financing, now is the time to talk with a lender<\/a>. Many home auctions require full payment at the time of purchase, while others may allow a short grace period to finalize financing.<\/p>\n But remember, when a house is being sold at auction, it\u2019s because someone is trying to recoup a loss. There isn\u2019t going to be room for negotiation<\/a> or special contingencies. You need to be ready to buy.<\/p>\n \u201cBuying a house through an auction has its risks, and you can minimize them by understanding the auction rules before you register,\u201d says David Clark<\/a>, a Michigan-based attorney with 35 years of legal experience. \u201cBe prepared to pay an up-to-10% non-refundable deposit based on the selling price of the property.\u201d<\/p>\n Cash is king when it comes to buying a house at auction, though, so having as much on hand as possible will help your chances of winning the bid on your desired property. If there\u2019s no way around your need for financing \u2014 and that\u2019s totally fine! \u2014 just make sure you\u2019re definitely good for the loan and that it fits with the terms of the auction.\u201d<\/p>\n \u201cIf you\u2019re using a mortgage to buy the property, never start bidding before you\u2019re pre-approved,\u201d warns Reynolds.<\/p>\n \u201cNot all auctions will allow you to use a mortgage, so be diligent with your research on each property.\u201d<\/p><\/blockquote>\n Be aware that many lenders won\u2019t finance a property you buy at auction due to the lack of an appraisal contingency to confirm the value of a home, even if the auction accepts financed bids. It might not be easy to find a loan to buy a house at auction.<\/p>\n So you\u2019ve found a home that\u2019s coming up for auction and your finances are in order \u2014 now what? It\u2019s time to register.<\/p>\n Depending on the auction, you may need to prove that you have adequate funds to buy a house, usually either with a bank statement or a preapproval letter from your lender. Otherwise, the registration process should be straightforward.<\/p>\n But this isn\u2019t a time to skip your due diligence \u2014 be sure that you fully understand the rules of the auction and what the payment terms are if you\u2019re the successful bidder.<\/p>\n Even if you\u2019ve participated in a home auction before, don\u2019t assume the process and rules will be the same each time. Read the fine print and ask questions if anything is unclear.<\/p>\n Finally, if it\u2019s an in-person auction, don\u2019t be late.<\/p>\n \u201cWhen you register at the auction, it can take 30 minutes to complete the process, so arrive at least an hour early,\u201d suggests Reynolds.<\/p>\n \u201cYou never want to get there a few minutes before the auction begins.\u201d<\/p><\/blockquote>\n Aside from getting finances in order, a responsible auction-goer will do some homework before committing their dollars.<\/p>\n While you won\u2019t be able to go inside a given property, you can at least drive by and perhaps walk around the exterior if the home is vacant. You can also do a little digging<\/a> to find out who previously owned the home. You might even be able to find real estate sales photos from the last time the home was on the market, which can offer a valuable glimpse into the interior \u2014 just remember that there are no guarantees as to the current condition.<\/p>\n Homes sold at auction are sold on an as-is<\/a> basis, meaning you won\u2019t be able to negotiate for repairs or schedule inspections<\/a> for a full overview of what you\u2019re getting into. This is why buying a home at auction can be risky, but for many investors and home renovation experts, the opportunity to buy a home at a great price makes it a worthwhile gamble.<\/p>\n Property inspections aside, Reynolds recommends conducting a proper title review<\/a> before bidding \u201cto ensure you won\u2019t be stuck with other financial responsibilities after the sale.\u201d Tax, construction, or homeowner’s association<\/a> liens may follow the home or even inhibit the sale entirely. And you\u2019ll also encounter red tape if the homeowner has filed an objection to the foreclosure sale and is attempting to reclaim the house.<\/p>\n When buying a foreclosure property \u2014 at auction or otherwise \u2014 the purchase price is rarely the only expense. Especially if you\u2019re planning to use the property as a rental investment<\/a> or flip it for profit<\/a>, chances are high that you\u2019ll need some cash pretty quickly to satisfy repair and renovation costs.<\/p>\n Though it\u2019s hard to assign a reliable figure to expenses when you can\u2019t inspect or even go inside a home before buying, based on the size, age, and location of the house, you can probably ballpark an amount to get things started. An experienced real estate agent can help refer you to a construction expert if you don\u2019t already have someone in mind.<\/p>\n Because buying a house at auction is a fast-paced process, there won\u2019t be much time for questions or deliberating when the house you have your eye on comes up for bidding.<\/p>\n \u201cConsult with a legal expert who can check the terms and conditions of the sale contract, the professional building report, and all the due diligence documents,\u201d recommends Clark.<\/p>\n In short: Carefully review all available documents pertaining to the house in question and the terms of the auction. Further, be aware that there may be auction and transaction fees above and beyond the purchase price of the home.<\/p>\n One great way to prepare for an auction, especially if you\u2019re planning to register for one that takes place in-person, is to attend a live auction as a spectator. You\u2019ll be able to watch and learn and get a feel for how the process works before <\/i>you\u2019re the one holding up a card to do the bidding.<\/p>\n Auction day has arrived, and now it\u2019s time to get down to business!<\/p>\n In-person auctions are fairly straightforward when it comes to the bidding process<\/a>. Simply \u201craise the auction bidder card if you are prepared to pay for the price being announced by the auctioneer,\u201d Clark states. He adds that it could take at least 10 days for the release of the certificate of title, and in the meantime, you\u2019ll have the certificate of sale.<\/p>\n The bidding process for online auctions may vary depending on the platform and the auction type. In some cases, such as with absolute or minimum-bid auctions, the auction will often go live, and bids can be submitted as long as the clock is still ticking.<\/p>\n For online reserve auctions, it\u2019s possible that you\u2019ll need to submit a bid, and it will then be rejected or accepted based on whether it meets or exceeds the reserve price.<\/p>\n Open bidding is a fully transparent bidding process. Everyone can see or hear the other bids that have been made, and then make their next move accordingly.<\/p>\n Open bidding drives competition and can result in bidding wars when two buyers are especially eager for a particular house \u2014 or when someone is comfortable playing fast and loose with their cash.<\/p>\n In Cornell\u2019s experience as a real estate agent, \u201cthere\u2019s always going to be three or four people at the courthouse trying to outbid you. They may not know anything more about the house than you do, but there\u2019s usually one or two sharks, and then there\u2019s one or two folks who\u2019ve read a book about how to make $1 million in real estate in 48 hours.\u201d<\/p>\n Remember to bid within your means and to avoid the allure of a bidding frenzy.<\/p>\n Blind bidding, on the other hand, keeps each bid under wraps. This is similar to submitting a purchase offer<\/a> on a home listed for sale \u2014 you won\u2019t know what other hopeful buyers are offering; you can only work with your own highest and best proposal. For this reason, sellers tend to prefer blind bids because motivated buyers have to come in strong from the beginning rather than waiting to see what other potential buyers are doing.<\/p>\n If you\u2019re the successful bidder on the house you\u2019ve had your eye on, it\u2019s now time to do the paperwork.<\/p>\n Since you\u2019ll already have your financing lined up and you\u2019ll have already reviewed the sales terms of the auction, you\u2019ll know whether you\u2019re due to pay in full or put down 10% (or some other deposit amount) immediately following your win.<\/p>\n Though you\u2019ve \u2014 hopefully \u2014 already had a title search conducted on the property, now is the time to purchase title insurance. This insurance will protect you against any undiscovered liens or objections, and you\u2019ll want to do this as quickly as possible after your successful bid.<\/p>\n As long as the title is clear and the home is vacant, the closing process<\/a> following a sale at auction should be fairly quick \u2014 especially if you\u2019re paying cash and don\u2019t have to wait on a mortgage loan to be finalized.<\/p>\n If the home is still occupied at the time of your purchase, you may have to go through the process of eviction \u2014 rules for which vary by state and county \u2014 or negotiate privately with the resident for them to leave the premises without involving the legal system.<\/p>\n Just remember to wait on the certificate of title before you start putting money into the property beyond its purchase \u2014 you\u2019ll want to be sure you are the free and clear legal owner of the home.<\/p>\n \u201cYou should never invest any of your money in the property until you\u2019ve claimed the certificate of title,\u201d cautions Reynolds.<\/p>\n Fortunately, this certificate should come through in about 10 days, barring any unforeseen issues.<\/p>\n When all is said and done and the home is yours, it\u2019s up to you and your plans for the home as to whether to move in or begin renovations.<\/p>\n Either way \u2014 congrats! You\u2019ve bought a house at auction!<\/p>\n If the variables and risks involved in buying a house at auction aren\u2019t already clear, Cornell warns first-time buyers of a few further possible complications and expenses with foreclosure properties.<\/p>\n \u201cYou\u2019re buying blind, you know? It\u2019s not for the faint of heart.\u201d<\/p><\/blockquote>\n Be prepared for your auction home to need repairs or additional investments in:<\/p>\nWhat houses go up for auction?<\/h2>\n
Where do home auctions take place, and how do I find one?<\/h2>\n
What types of auctions are there?<\/h2>\n
Absolute<\/h3>\n
Minimum bid<\/h3>\n
Reserve<\/h3>\n
So, how do I actually buy a house at auction?<\/h2>\n
How do I sign up to participate in an auction?<\/h2>\n
How should I prepare for the auction?<\/h2>\n
Do your research<\/h3>\n
Estimate post-purchase expenses<\/h3>\n
Understand the fine print<\/h3>\n
Get a preview of the action<\/h3>\n
How do I make a bid?<\/h2>\n
Open vs. blind bidding<\/h3>\n
What happens after I win?<\/h2>\n
Pay for the home<\/h3>\n
Buy title insurance<\/h3>\n
Clear to close<\/h3>\n
Move in or start working<\/h3>\n
First time buying at auction? Proceed with caution<\/h2>\n
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