Buying a house at a foreclosure auction isn’t as easy as you think it is. Due to the tricky process, some people suggest you avoid it altogether. Don’t worry! Buying one of these properties can be a great deal and a fantastic place to own. Here you’ll read about some of the risks of buying a house at a foreclosure auction and how to avoid them.
- You don't know the laws.
If you don’t know the auction laws of your state, things can go south quickly. Some states require you to pay the full bid up front in either cash or with a cashier’s check. This can be hundreds of thousands of dollars. Other states only require you to pay a percentage of the total sum up front, which is often 10%. Then, a plan is set up to finish paying off the property by a certain time. Before looking into any property, you should know the state laws of foreclosure auctions. This can be done by speaking to a real estate attorney.
- You're fooled by the “deal.”
A house might seem like a deal at first, but fees and liens can change the price. Those who win a bid at a house not only pay the associated fees on a property but all of the liens as well. You’re also going to pay all of the attorney’s fees. This can cause the price of a house to skyrocket quickly. A $300,000 house might have an opening bid of $400,000. By the time the bidding begins, your winning bid may be more than the actual worth of the property. Research the worth of the property and any liens that may be against the house. This will avoid any surprises.
- The previous owner might act out.
Some states have no laws to evict someone from their home in the case of an auction. This is left up to you, the winning bidder, to evict someone from your property. Not only this, but the auction process can anger the owner of the property. It isn’t unheard-of that an angry owner trashes their house before finally being evicted. This can cause many unnecessary headaches. Be sure if you have to evict the current owner before bidding on any property.
- The home may not be in good shape.
Due to the fact that the house is up for foreclosure, it may be in disrepair. Someone who cannot make mortgage payments will not have the ability to keep the house in good shape. If it has been left in a bankruptcy process, it has probably been left empty. This can cause other people to break in and gut the house taking copper, pumping fixtures, or even the roof in some cases. Foreclosure houses are always sold “as-is” so know what sort of property you’re purchasing. Drive by the property or speak to a real estate attorney. Do not attempt to enter the property as the house may have squatters.
- You picked an inflexible auction house.
In some cases, auction houses will not allow you to view the property that is up for bid. This is a dangerous process. You’re going in blind. You have no idea what the property looks like, but chances are – it isn’t good. So, the best thing to do is to avoid these auction houses. Stick with places that allow you to inspect the property before actually bidding.
- Auctions can be intimidating.
An auction can last only a few minutes. This can be extremely intimidating. To decrease this, go to the auction house ahead of time. It’s advised that you arrive early and attempt to speak to the auctioneer. Most of all, take cues from other bidders. However, be aware that some regular bidders may not welcome the outside competition. Go in having extensive knowledge on the property and have a set price you’re not willing to go above.