Buying closed houses at auction

Buying closed houses at auction: everything you need to know

If you are anointing a handy DIY, looking for real estate investors, you just want a low-budget premium, then equestrian paths can be quite tempting.

If you are a handy DIY, looking to invest in real estate or just want a low-budget first home, then foreclosed homes can be quite tempting.

Often put up for auction at basement prices, they have seemingly low initial costs, leaving plenty of room in your budget for some paints, a few contractors, and that completely custom home you’ve dreamed of.

But locked properties are not for everyone – no matter how handy you are. Are you thinking of buying an auction house? Make sure you know what to start with first.

How real estate auctions work

Excluded property auctions come in several formats and vary by state and county. In states that have enforcement, which means that the process has to go through the justice system, auctions are actually held in local courts. The appointed judge must rule in favor of the lender, and the home is then put up for auction.

In non-judicial enforcement proceedings, a property manager shall deal with the auction. These auctions can take place at a local auction company, at a community center or even online.

In terms of buying, the process is quite similar in general. There will be a starting price – usually the cost of what is owed on the mortgage or possibly lower – to help raise interest. Buyers can then bid up until the auction closes or auctions have ended.

Usually, the largest bidder wins, although in some cases the lender may end up choosing which bidder receives the house.

The winning bidders will have to pay auction fees, bidding fees and serious money before leaving the auction. They will go through escrow and foreclosure, as in the case of a traditional home purchase in the coming weeks.

Pros and cons of buying a foreclosed home

The biggest benefit of buying a closed house at auction is the price. In most cases, buyers can get more money than they would on the open market, which means a bigger and more expansive house than they would have traditionally afforded.

The major disadvantage of buying a foreclosure? It is very risky. Major housing problems may occur (many auctions do not allow home inspections), and many foreclosed homeowners do serious damage to their property before leaving the premises.

There may also be hidden costs. Because foreclosures also require you to pay any loans, overdue taxes, refunded interest, and even things like attorney’s fees, the final cost can be much higher than the original price of the auction sticker.

Finally, it can also be very competitive. Fix-and-flip investments are quite popular, and investors will come from all sides for the chance to buy a decent property at a low price. In many cases, they will be highly experienced investors who are well versed in bidding and bidding processes.

What we like

  • Reduced initial price
  • More house for your money
  • Lots of opportunities for modernization and personalization of the house

What we don’t like

  • Potential hidden costs and legal issues
  • Extremely competitive in certain markets
  • Possible unknown property issues

What to remember before buying

Locked houses can come with a lot of luggage. Many will have property rights over the property for unpaid taxes of the previous owner, insurance or even things like the pension for outstanding pensions. You will have to pay them or settle the accounts directly with each right holder. This can take a lot of time, money and resources if you are not well versed in the process.

There is also a chance that the homeowner will go bankrupt on the day of the auction. If this happens (and you have already bought the house), you may have to wait a while to get your money back. You will also need to bid for another auction once your lender returns it to the market.

Is a house built right for you?

At the end of the day, it is important to weigh the pros and cons, consider your goals as an owner or investor, and look carefully at your finances and ability to improve your home before buying a home at auction. Although a locked house may look attractive on its face, there are a lot of nuances in buying these troubled properties – and knowing the entire field of activity you are in can help you save time, money and serious problems.


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