Buying Homes At An Auction

Everyone loves a deal, and the Internet abounds with stories of people buying real estate for pennies on the dollar at auction. The reality is that there are great homes to be found at auctions, and you can score one for less than actual market value. But if it were always that easy, real estate agents wouldn't exist. Learn about home auctions and see if this is a good option for your to explore.

Buying Homes at Auction 

• Lack of clear title. You can buy a house at auction only to find out later that there is still a six-figure lien attached to it. Pay up, or lose the home.
• Limited selection. Most homes are not sold at auction, and many of the factors that lead to homes being sold this way (e.g. bankruptcies and foreclosures) are concentrated in areas that you may not have any desire to live in.
• Poor maintenance. People whose homes are about to be repossessed tend to let up on the upkeep of their homes. Some even damage the homes out of spite.
• Homes sold as-is, with no warranty. When you buy a home at auction, you buy it's faults, with no recourse. You typicially won't have a chance to inspect the home, and there is no one to turn to if the second floor bathroom ends up in the first floor kitchen a day after you move in.
• Competition from professional investors. Tax lien auctions are packed with professional buyers bidding on homes for investors worldwide. It's tough to be a guppy in a shark pool.

How houses end up at auction
Houses can end up on the real estate auction block for many reasons. Typically it is the result of the owner failing to pay their mortgage, property taxes, income taxes, or other obligation. Or homes are seized by the government due to illegal activity. Sometimes real property is just abandoned. A growing number of real estate auctions are initiated by the owner who feels that it will get them the highest price for their property, or sell their property quickly as is often needed in the case of divorce or other legal proceeding.

Where to find them
The sheer number of outlets for real estate auctions can make auction hunting a time-consuming affair. Local, city, state and Federal government organizations all conduct auctions, as do agents for banks, mortgage companies and private sellers. Check with your local government's tax office, type "real estate auctions" into your favorite search engine or visit www.homesales.gov for current information about single family homes for sale by the U.S. Federal Government. 



Online auctions
Online auction giants like eBay and Yahoo! have capitalized on the growing interest in online real estate auctions. There are many caveats when dealing with real estate auctions (more on that later) and these are magnified when dealing with online auctions. The good news is that these auctions, when not conducted by true auction house licensed to sell real estate do not create binding contracts. The bad news is that this applies to the seller as well as to you, the buyer.

Many sellers that put real estate up for auction on web sites are just using it as a marketing tool to generate interest for their properties. Even after placing a "winning" bid on a property, you will still be forced to negotiate with the seller on a final price. Unless you've overpaid.

Tax lien and tax deed auctions
Many people confuse real estate sold at auction with tax lien sales, which also take an auction format. During a tax lien auction, you bid on the right to collect past due property taxes, basically paying the city or county for the owner's delinquent tax bill. If the owner does not repay this obligation (with interest) you can foreclose on the property and take ownership. Most owners do pay before this happens, so tax lien sales are a way to make an investment return on your money, not acquire real estate.

A tax deed auction actually gives the winning bidder ownership of the real property, free and clear of any other stakes to the home.

The terms of these auctions vary widely between municipalities, so know exactly what is being offered before bidding at one of these auctions.

Finances
A big hurdle to buying property at auction is the difficulty in financing the purchase. At most auctions you will need to pay registration fees and have your down payment money in hand before you can bid. For most winning bids you will need to have cash for settlement already available. At some auctions, financing the properties is not even allowed. So if you are planning on buying a home without a mortgage, or using an alternative form of financing, this can still be a viable option.

Risks of buying at auction
The risks involved in buying real property at auction are formidable, and not for the faint of heart. First-time homebuyers with limited assets need to be particularly careful or they may end up losing their investment and ability to buy another home for a long time.

These issues may include:

• Lack of clear title. You can buy a house at auction only to find out later that there is still a six-figure lien attached to it. Pay up, or lose the home.
• Limited selection. Most homes are not sold at auction, and many of the factors that lead to homes being sold this way (e.g. bankruptcies and foreclosures) are concentrated in areas that you may not have any desire to live in.
• Poor maintenance. People whose homes are about to be repossessed tend to let up on the upkeep of their homes. Some even damage the homes out of spite.
• Homes sold as-is, with no warranty. When you buy a home at auction, you buy it's faults, with no recourse. You typicially won't have a chance to inspect the home, and there is no one to turn to if the second floor bathroom ends up in the first floor kitchen a day after you move in.
• Competition from professional investors. Tax lien auctions are packed with professional buyers bidding on homes for investors worldwide. It's tough to be a guppy in a shark pool.

*all information taken from Hotpads.com