Purchasing a property through real estate auctions is probably one of the most common methods of those looking to buy. It might seem intimidating but once you learn how it works, you find out that this can be an exciting way in buying an investment property. SellUsHomes wants to get you a handle on everything you need to know about real estate auctions and how to buy from them the right way.
What happens in an auction?
A real estate auction basically offers a wide range of properties with different price tags on them. This includes houses under foreclosure, HUD homes, and tax liens. There are properties that you can’t find on auctions such as commercial properties and real estate notes.
An auctioneer starts the bid with the minimum price which eventually goes higher as bidders settle in for the final buying price. Bidders should be registered and must submit proof of identity. More often than not, auctions also require a certain amount for a deposit from bidders. There are certain requirements that other auction houses may request such as bank statements or proof of available lines of credit. This gives an assurance that anyone who may have made the highest bid can complete their purchase.
Types of real estate auctions
- Absolute auction
In this type of auction, the property is sold to the highest bidder regardless of the price. There are no minimum bids that are set. This means that once the auctioneer opens the floor for bidding, all high bids are accepted. For example, assuming that you are the only buyer present at the auction and the bid starts at $200, you could get to have the property for $200. However, there is a huge competition in these types of auctions since investors know that you could end up buying a property at a price much lesser than the average value.
- Minimum bid auction
This is an auction where the seller can set the minimum reserve price of their property meaning they will only accept a bid that’s higher than the price that they set. Unlike in an absolute auction where sellers are most likely distressed and in need for a quick cash, sellers in a minimum bid auction are the complete opposite. This is popular among long-term real estate investors.
- Reserve auction
The seller in this type of auction has the right to accept or decline the highest bid over their reserve price. This price is set by the seller and communicated with the auctioneer but not communicated with the public. A decision on whether or not the seller accepts the offer is given within 72 hours. This is an auction that buyers usually avoid since it takes too much time especially for investors looking for a quick sale.
- Online auctions – this has been increasing in popularity because investors seem to find it much easier compared to traditional live auctions. Real estate investors can bid from anywhere over a set time period which usually takes days or weeks to finish.
How to properly buy at the auction
- Set your parameters
Know what you’re looking for in a house and what your constraints are. Set up a timeline and an objective before you start bidding. This will dictate your financing options as well as the size, location, and the condition of the properties sold at the auction. Cash offers are mostly the preferred method of payment although not all cash offers aren’t subject to lender requirements. In such a case, you’ll need to obtain financing from a lender which can either be hard money loans or conventional mortgages. Also, be prepared to set up a budget that you’re willing to bid. Winning bidders are charged a “buyer’s premium” which is a fee paid to the auctioneer to cover for administrative expenses.
- Find and register for an auction
We’ve listed the different types of auctions that are available for your disposal. The question is where you can find the right auction for you. There are ways to find real estate listings such as:
- Auction sites
Online real estate auction sites can offer both face-to-face and virtual auctions. There are a lot of websites that offer different types of auctions if you browse around. Some of these mostly need specific requirements before you can start bidding.
- Real estate professionals
From real estate agents, brokers, and trustees, these professionals know where to find the right auction for you. Joining a real estate network or group in your local area can help you find deals with auctions. Bankruptcy lawyers and accountants can also be a good source of info when looking for opportunities.
- County courthouse
County courthouses list all of the upcoming real estate auctions in the local area. Try to search online for their contact info so they can direct you to their auction page and know what property auctions are held and when they’re held.
- Classified Ads
This seems a bit historic, but auctions still list properties in your local newspaper. Don’t limit yourself into utilizing one method of finding property listings. The more methods you use, the better are
- Attend the auction and close the deal
Whether the auction is live or online, they generally have the same process. You’re now one step closer to having a new investment property! The auction process typically involves:
- Winning the bid for the property at auction
- Pay the deposit within the given time frame (usually a 24-hour period)
- Get a loan on the property
- Use a title company to close on the property
Once the title has been transferred, you receive a certificate of title and the keys to the property. Always take note of the buyer’s premium which is typically up to 10% of the winning bid.
Key factors to consider
Make sure that the property you’re interested in has the following before you start bidding.
This proves as evidence of ownership. You need to aim for a “clean title” or something that doesn’t have any legal problems attached to it. You can confirm a title of a property by reaching out to your local Register of Deeds.
This is placed on the house when creditors collect delinquent payments. If you happen to purchase a property with a lien, you become responsible for settling it since you become the new homeowner. Checking with the County clerk’s online records or visiting their office can give you assurance if the property has a lien or not.
- Right of Redemption
This is mostly the case when homeowners lose their property due to foreclosure and it ends up at auction. This means that they have the right to redeem their house back if they manage to pay the debt plus interest. If they manage to pay the winning debt to you who closed the deal, this stops their house from being sold.
Of course, you’re looking for a property that is in good condition not unless you’re looking to fix and flip the house. You might not be given the opportunity until a few hours before the auction starts. Try to drop by to give a proper assessment before thinking about bidding on the property.
If bidding at an auction isn’t for you, there are numerous ways in order to purchase an investment property. SellUsHomes can help you re-evaluate your choices when it comes to buying the right property for you. You can reach us by phone: (734) 224-5947 or by email: firstname.lastname@example.org.