Foreclosure Auction ‐ How Does it Work?
Buying a property at a foreclosure auction can be a great way to save tens of thousands of dollars on the price of a property, but it is important to understand the process. Learn how to buy a home using a foreclosure auction with these simple steps:
Buying at a Foreclosure Auction
- Sign Up for Auction Alerts. Many banks, government agencies, and public organizations turn to foreclosure auctions to quickly dispose of non-performing assets and obtain needed liquidity. Sign up to be notified of pending foreclosure auctions in your area.
- Review First. Before participating in a foreclosure auction, take time to follow the process and explore the outcomes first. Whether the auction is live, online, or via sealed bid, it is important to learn the ropes. For example, live auctions may add ten percent (or more) “bidders fees” to the final price, whereas many government auction foreclosures are based upon “net,” profit which might actually be different than the highest bid.
- Get Pre-Qualified. Many foreclosure auctions require large escrow payments in order to bid on a property and may stipulate that final payment is due in full within thirty days of the winning bid. Other foreclosure auctions, especially those conducted by government underwriters, may actually offer financing programs but give big discounts and streamlined processing for cash offers. Either way, it pays to get pre-qualified and have the financing in place.
- Research the Property. Most foreclosure auctions offer the property in “as-is” condition, which means you will be responsible for all repairs, liens, and even back taxes owed. It is essential to have a full inspection performed and learn as much as possible about the property in order to decide what type of bid to place on the home. Hidden defects such as HVAC system issues or other problems can be costly to repair and dramatically reduce the profit potential of buying at a foreclosure auction.
- Obtain Certified Funds. If you intend to place a bid on a live foreclosure auction you will likely need proof of certified funds in order to bid. Otherwise, sealed bid auctions may require an application and/or application fee. Be sure to contact the listed broker or other registered agent to obtain a full packet of information about the property. Be sure to request copies of homeowners association reports, initial inspection reports, and other relevant information prior to the closing date.
- Bid! Before placing a bid make sure you are qualified and understand the terms. For example, many government sponsored foreclosure auctions are initially open only to owner occupants, but they also may allow bids lower than the suggested starting price (15 percent is typical). If the property is not sold, it may then be offered to investors or re-advertised at an even lower price. Read eligibility requirements before placing a bid to maximize your chances of obtaining a great price at a foreclosure auction.