Once a bank forecloses on a home, it is going to market the home to the public through a foreclosure auction. Although buying a home through a foreclosure auction does not come without a threat, these auctions often pose a golden opportunity for real estate investors and private individuals alike to purchase homes for below fair-market price.
Significance
Before attending a foreclosure auction and leaping headfirst into the bidding process, its critical that you learn the rules. Every municipality has special rules concerning attendance, payment and bidding following the auction. In most cases, you need to submit payment in full to the bank immediately or within a couple of days of this auction’s end. Thus, financing a foreclosure auction purchase might not be a feasible choice for some buyers.
Hazards
You are not likely to have the ability to run a home inspection prior to purchasing a home at a foreclosure auction. Without a home inspection, you don’t have any true way of knowing if the home suffers from issues that will prove expensive to fix. In addition, if the former homeowners are still dwelling in the foreclosed home, the duty for evicting them falls upon your shoulders. In case the former homeowners are not willing to leave, eviction can grow to be a messy and time-consuming process.
Misconceptions
If, like most bidders, you are looking to purchase homes at rock-bottom prices, the foreclosure auction may irritate you. John T. Reed, the editor of Real Estate Investor’s Monthly, says that although some foreclosures sell for 30 to 40 percent below market value, many sell for just 5 percent below. Banks are not going to necessarily market every home for the amount the previous homeowner owed on his mortgage. If the amount owed is minimum, the bank has the right to purchase back the land at auction and place it on the open market for a greater gain.
Considerations
Even though you won’t have access to a home inspection, that does not mean you can not take the time to research foreclosed properties where you are interested. Looking at the current sales in the region will provide you a general idea of the worth of every property. In addition, you can see the local tax assessor’s office or site and research each house’s history. Information such as the tax value, current real estate improvements and square footage can all help you discover the perfect home on which to bid. In case the property is no longer occupied, you can even stop by the home in person and inspect its exterior all on your own.
Expert Insight
When bidding against other people at a foreclosure auction, then you risk getting caught up in a bidding war and paying more for a home than you originally intended. The specialists at RealtyTrac.com, a site known for its studies into real estate buying and foreclosure trends, recommend that you specify a maximum bid price for every property you plan to bid before attending the auction. In case you have a preset maximum sum you are prepared to pay, it is going to be much easier to recognize if the bidding has gone too high and will help you avoid paying too much for a foreclosure home.