There are several ways to buy a property. But if your goal is to buy a home priced below conventional market rates, real estate auctions are a place packed with quality but relatively inexpensive homes. On the other hand, you should be guided about the risks of selecting a property placed at auction.
Essentially, a property put up for auction is a foreclosed property. Once a homeowner receives a Notice of Default, they move closer to foreclosure and would then go through several stages to put themselves up for sale. One of which is the auction. Properties within this setting are those that did not sell through multiple listing services in a given period of time. These houses are generally intended for large investors or buyers backed with a lump sum of money. This is because the process requires full withdrawal of the money once the offer is approved. This type of property is not recommended for a first-time homebuyer to purchase. Most properties sold through auctions require potential buyers to shell out a 5 percent buyer’s premium. One needs to have perceptive skills to offer an attractive offer that can topple other competitive bidders. The difficulty increases when even the lender makes an offer.
On the other hand, buying a repossessed property through online auctions carries other unique risks. Unlike real auctions, you cannot easily inspect the property. Be prepared to own a property as it is. Say, the oven doesn’t work right, you can’t just go back and ask the landlord to fix it. By contrast, the previous owner can claim a property within a redemption period. This happens when the owner recovers his finances, pays off his loan, and then saves his property from foreclosure. The property cannot be fully owned until such period expires. Most states have this mechanism. The length of the period and the rules on who is eligible to redeem vary by state and/or county. New Jersey allows 10 days and Tennessee has up to 700 days for the redemption period. Keep in mind that this system generally occurs in agricultural areas where farmers are waiting for payment for their crops, which would then go towards repaying their loan. You can also ask the owner of the house if he can buy the right of redemption from him. It usually costs between $500 and $1,000.
Be careful what you are buying. Some auctions mask the sale of mortgages and liens on the property itself. It would be unfortunate if you accidentally bought a second mortgage on a house. Therefore, it is better that you make sure of the auction rules and the specifications of the property before you deposit your money. But despite these risks, it’s actually much more convenient to participate in online auctions. It’s also a factor that may have contributed to increased clamor and exposure of more foreclosed properties at auction. Many buyers prefer online auctions as they are less intimidating. There is also the advantage of not reserving a space to be a qualified bidder. For example, you can bid $250,000 in an online auction, pay only 10 percent, and borrow 90 percent. Other courthouse auctions require more guarantees. On the other hand, if you won the offer, you should get the cash in a timely manner.
If you are a veteran real estate investor, then you can enjoy the advantages of owning this property. First of all, you can have massive savings. Immediate ownership is guaranteed as you must deposit all cash up front. There are numerous properties up for auction that cost well below their original value. For one in Ohio, a two-story home converted into a multi-family duplex apartment sold at unreserved auction for just $3,200, while its value was $35,000. This 1,900-square-foot property has 11 rooms. Although this particular house needed some repairs and cleaning, there is a noticeable saving in its price.
