It is certainly a sellers’ market as witnessed by countless homes being sold above asking prices regardless of condition. Seasoned investors have taken to secondary and tertiary markets to identify assets with enough “meat on the bone” to invest in. Real estate auctions have provided some great deals for seasoned investors but are rarely a primary source of inventory. It is by far the riskiest acquisition method; therefore, it is imperative to be properly educated on the process before dipping your toes into this arena.
In fact, in many parts of the country, it is a complete waste of time to bid at the foreclosure auction. For most it makes more sense to purchase properties in foreclosure prior to or after the auction procedures when the bank is typically more amenable to negotiating a lower price. Frankly, by that time, it is simply found money for the bank as they have already written off the debt.
With the expected rise of foreclosures post-pandemic some believe things will begin to heat up again at auction sites, if that happens, let’s take a look at the “need to know” before you take the plunge into the Auction world:
- Auction properties often do not allow a home inspection or any legal way to view the interior in person. If you cannot afford the risk of buying a property in poor condition, stick with auctions that allow you to inspect the property before bidding.
- Review and understand all auction rules & get familiar with the specific auction procedures: Some auction procedures giving 6-month redemption periods to inferior lienholders OR endless 10-day upset bid opportunities to competing bidders, will have very few, if any, bidders.
- Home inspections are typically not allowed so you cannot view the interior. If you cannot inspect it prior to bidding, walk away!
- Always check for liens, and occupants before you bid. If the first lienholder is NOT the foreclosing lien, then the winning bidder will be responsible to pay the balance. The biggest mistake auction bidders can make is assuming they are bidding against the first position lienholder.
- Most private/hard money lenders will not fund an auction buy. (Inspections and appraisals are typically required)
Unlike a short sale where you must negotiate with all lien holders (though secondary lienholders are get nothing if it goes to auction so they are pliable), when the first mortgage is foreclosing, every inferior lienholder gets wiped out.
Educate yourself and avoid the school of hard knocks!!!!
