Foreclosure, not paying property taxes, and outstanding issues with a homeowner’s association are all common reasons for a home going to auction.
Consider the Risks and Rewards
It’s wise, however, to consider the upfront risks.
- You can’t have the property professionally inspected before the auction. This could lead to surprises like physical damage to the property, squatters in possession, and structural problems.
- Generally, you must pay cash. Rarely are financed funds accepted. If not paying cash outright, a home equity line of credit could be used or a cash-out refinance.
- Legal responsibility is entirely with you. That means you must conduct all the necessary due diligence which includes outstanding liens and title issues. It might cost you to have a title search performed ahead of time, but it could save you thousands of dollars later.
- You could be responsible for other taxes, too. If back taxes are owed, those must be paid. If the property is in a homeowner’s association, you may be liable to pay those fees as well.
Is Buying A House at Auction the Right Decision for You?
Because of the high degree of risk, most real estate auctions are attended by real estate investors wanting to flip a property and turn a profit, professionals with a lot of experience.
If you do choose to buy a house at auction, you’ll want to come with plenty of cash as well as reserves. And follow these tips for a successful transaction:
- You’ll want to get reliable information about the foreclosed property before the auction.
- You can’t get inside the property before the auction, so walk around the exterior to check its condition. Ask neighbors what they know about the property.
- You can assume that there is something wrong with the property, so bid no more than 70% of the property’s market value.
- Figure out the market value so you can prepare your bid. You may want to commission a realtor to do a broker’s price opinion. This will show you comparable sales of homes similar to the auctioned home, giving you an idea of what to bid.
- Run a title search on the property. Some auctions don’t give a clean title to the property up for auction. Pay to have a title search performed on the property so you know what you’re getting into before you buy the property.
Buying a house at auction is a big step. Make sure you have all the information you need to make an informed decision!
When you’re ready to close on your real estate transaction, turn to the pros at Lilly Title & Settlement. We offer title insurance as well as real estate closings.