If you’re not interested in or don’t like the house listings that you’ve been seeing, you may want to check out properties that are up for auction. Most auctions are usually advertised in advance and are open to the public.
There may be several homes for sale. Each interested party is allowed a certain amount of time to place their bid. Bids may be either taken online or in person. The person with the highest bid is awarded the right to purchase the home.
The only exception is for lender confirmation auctions. In these types of auctions, the lending institution that currently holds the mortgage for the property being sold has to approve the winning bid.
Buying a home in Texas isn’t always easy. The entire process often takes several weeks or months to complete.
There are different people who get involved along the way, and there may be problems or other issues that could arise. In most cases, you should still be able to achieve your goal. Knowing what you want, having your finances in order and determination can help you succeed.
Here are some of the pros and cons of buying a house at auction:
Advantages:
1. You could get a good deal.
The primary reason why people choose to buy a home at an auction is that they may be able to acquire a home at a price that’s below market value.
Some homes sold at auction are ideal for individuals, young couples or retirees. Buyers can save themselves thousands of dollars, money that can be set aside for utility bills, mortgage payments and other large-ticket purchases in the future.
2. Homes sold at auction are great for remodelers.
If you enjoy remodeling or renovation, a home that’s up for sale at an auction could just be the next project you’ve been looking for. Many people enjoy working on “fixer-uppers.”
They can do just about anything to the home that they want. For example, homeowners may decide to finish the basement to add more living space, remodel the kitchen, or convert spare bedrooms into a home office.
3. You could flip the home for a sizable profit.
It may take a few months depending on the condition of the home, but you could turn around and resell a home that was purchased at auction. This tactic is frequently used by house “flippers.”
They buy homes at auction for low prices, work on repairs and upgrades and then put the homes back on the market. This is only something that should be done if you have the time and fiscal resources to do so, but it could be worth the initial investment.
Disadvantages:
1. The property is sold as is.
All homes for sale in an auction are on an “as is” basis. There are many reasons why homes are sold at auctions. Some of them may have liens on them for unpaid taxes, while others have gone into foreclosure at one point in time.
The house could be in immaculate condition or it could have been neglected, vandalized or damaged by its former tenants. Unfortunately, you won’t really know very much about what happened to the house before
No one, not even licensed inspectors, are allowed to review the condition of homes that are put up at auction in most instances. That’s why people tend to shy away from properties sold at auctions. It’s an “x” factor that many just don’t feel like is worth it.
2. It can be an expensive gamble.
In certain cases, the total costs of necessary repairs and/or renovations on a home purchased at auction could be more than what you paid for it.
The home could be a real money pit. It could take weeks, months or even years to get things up to code or to have the house in a livable condition.
Conclusion
You may need to have a lot of money on hand if you’re planning on buying a house at auction. Most auctions will typically require payment via cash, a cashier’s check or money order. The home will usually need to be paid for in full upfront before you can claim ownership.
You may notice that many bidders at home auctions are either real estate investors who have the available cash on hand or people who are bidding as entities such as limited liability partnerships, limited partnerships or trust. Such bidders may be required to provide the appropriate documents from their entity or partnership.
Some auctions allow a grace period of a day or two for the winning bidder to supply the necessary funds for the transaction. If you fail to come up with the money for the purchase price, you may wind up having any deposits made forfeited. You could also be banned by the auction house from attending future sales.
If you are financing the transaction, it’s a good idea to get pre-qualified for a loan as soon as possible. Homes sold at auction still go through the same escrow and closing procedures as any other home sale. The auction company may recommend certain lenders that you can work with. Just make sure that you understand your rights and obligations before signing any sort of loan contract.
There may be certain auction fees written into the purchase agreement. Attorney fees, auctioneer fees, bank fees, property preparation charges and sale fees are just some of the expenses that may be added. Read the agreement carefully so that you fully understand these charges. Feel free to ask questions if anything seems unclear.
If you find a home at an auction that you want, do your homework first. Conduct a title search for the property. This will inform you of any liens, mortgages or claims against the home. If the house has a clear title, you may want to purchase a title insurance policy before the closing process has been completed. This will protect you against any additional claims or liens against the property that weren’t discovered during the title search.
It’s up to you whether or not you want to buy a house at auction. It could be a great value and might make a nice starter or retirement home. However, you won’t know the condition of the home or the extent of any possible damage until it’s been purchased.
You may want to consult the services of a real estate attorney so that you’re aware of what you are and aren’t responsible for should you buy a home sold at an auction. Understanding the potential risks and rewards can make the experience more realistic. Whatever you choose, proceed carefully and enjoy the process.
Have Questions? Ask Rene!
