Do you have the right stuff to buy a house at auction? A very popular show on the HGTV network is “Flip or Flop,” in which a married couple purchases a home at auction. Then they gut it, renovate it and sell it for a profit – or at least they hope. Of course, because it is a television show, they make it look easy. In truth, buying a home at an auction can indeed be a quick purchase. However, there are many other factors that you should take into consideration when thinking about buying a home at an auction.
Consider the Source When Buying a House at an Auction
The first thing you need to understand to buy a house at an auction is that it is usually a bank or lending institution that is conducting the sale. In other words, it is rarely the homeowner selling their property. That will mean that the home has been in foreclosure for some time, and may also have been neglected.
If the homeowner gives up hope of staying in that house, then they’re not really going to care what happens to the roof, flooring, plumbing, or electric. They could also create all kinds of damage – intentional and unintentional – as they leave the home. All of this falls under the category of “buyer beware.”
It is important to consider the source of that home being put up for auction because you might not get a chance to look at the property. While some auctions have an open house and allow prospective buyers to view the property, you won’t be able to conduct a thorough inspection as you would with a typical home purchase. In other auctions, you might only be able to drive by the property and see it from the outside. That should have you asking, “What are they hiding?”
Unless you are able to look inside the home, there is a good chance you’ll be doing some renovations before moving in. That is an additional cost you’ll have to factor into your purchase. There is also the time factor to think about. Will your current work schedule allow you to supervise or DIY the renovations?
Cash Is King When Buying a House at an Auction
A home that is being sold by auction requires you to pay the purchase price in cash. That will mean having a potentially large sum of money in the form of a cashier’s check at the ready. You will also have to take care of the auction fees associated with the sale. In some instances, there might even be liens on the property that you will have to assume. You should know all of that before making a bid.
There are some auctions that let prospective buyers use financing for the purchase. However, you would be in a stronger position if you were preapproved for the amount. Don’t be surprised if you show up at an auction and are squaring off against real estate investors with deep pockets.
A Better Price
The risks associated with buying a home at auction are also what often make them such a smart purchase. You’ll find that many people are scared off by a foreclosed property. That will often drive the price down and allow you to swoop in and score a major deal. This is especially true for a foreclosed home in a good neighborhood. If location matters and all you’re dealing with are cosmetic fixes, then this could be a very good deal.
Buying a House at an Auction Can Be a Fast Sale
As you might expect, a home auction will happen very quickly. You could literally see a property that is put on the block on a Monday and by Wednesday be the winning bidder. Keep in mind that just because you are the winning doesn’t automatically mean you’ll get the house. The lending company that holds the title will still have to approve the bid. Often, they are happy to get that asset off their books so there shouldn’t be a problem.
Working With a Broker
Are you on your own with a home auction? That depends. There are many qualified brokers who will be happy to help guide you on the process to buy a house at an auction. If this is your first time buying a home, then you could benefit from that kind of support. An experienced broker will have been through this process many times.
You could also opt to stick with a reputable auction brokerage. These companies specialize in these types of transactions. They are also a terrific resource for upcoming auctions. That will matter if you lose out on your first pick.
Buying a home at an auction can be a lot of fun. Although you might be going up against a few seasoned pros, that shouldn’t diminish your excitement about buying a home. Whether it is for yourself or as an investment, auctions could be the best path forward.