Looking to acquire a property?
You don’t have to limit yourself to the traditional channels of searching real estate listings and working with real estate agents. You can also purchase a property at an auction.
Pros and Cons of Auctions
The benefits of buying at auction include expanding your options and possibly purchasing at a discount. You may face less competition to buy a property compared with buying the traditional way. But you’ll also be dealing with a different pool of potential buyers—often, experienced investors.
Perhaps the biggest risk of buying at auction is that you’ll have limited knowledge of the properties for sale. Hence, making an expensive misstep a very real possibility. And, as with any real estate purchase, you’ll need to read, understand, and sign lots of paperwork.
Real-estate wisdom is rich with tales of homes bought at auction for well below market value. Yes, such bargains do exist. However, auctions are generally a riskier way to acquire property than buying through the usual process. That reality makes it vitally important to be well-educated about how real estate auctions work. As well as prudent about the properties you consider bidding on.
Many people incorrectly believe that auction homes are a good deal.
To help you avoid making a big mistake, this article will explain the basics of residential property auctions. So you can decide if this option might work for you. Whether you want to live in the property or use it purely as an investment.
WHAT YOU NEED TO KNOW ABOUT AN AUCTION:
- Buying a home at auction is riskier than buying through the usual process. It’s vital to be well-educated about how real estate auctions work.
- You can find home auctions through local governments, real estate agents, and online sites like AuctionsKenya.
- Auction properties often do not allow a home inspection or any legal way to view the interior in person. If you can’t afford the risk of buying a property in poor condition, stick with auctions that allow you to inspect the property before bidding.
- Review and understand all auction rules and do your due diligence on any property you are interested in—for instance, checking for claims, liens, and occupants—before you bid on it.
Foreclosure Properties
When a homeowner has not paid the mortgage for at least a few months they may fall into default and end up in the foreclosure process. When this happens, the bank files a notice of default with the county recorder.
If the homeowner does not pay the balance owed or renegotiate the mortgage with the lender. The lender can put the home up for auction and force the homeowner out for nonpayment. These foreclosure auctions are held by bank-hired trustees.
See Also: 5 Questions to Ask Yourself Before Buying a Foreclosure
Property Tax Default
Another way a home ends up on the auction block is when the owner does not pay the assessed property taxes. In these cases, it is the unpaid tax authority, rather than the bank, that seizes the property. The resulting tax lien auction is conducted by a local sheriff, clerk, or the county or local authority’s comptroller’s office.
Finding A Real Estate Auction
One way to find auctions is by contacting local governments directly, or visiting their websites for information, then following up by phone to confirm the details. Another is through sites like HF Group and AuctionsKenya. However, online information is not always accurate.
Properties may be listed that are in pre-foreclosure because the owner is behind on payments. These properties may never go up for sale because their owners catch up on payments or come to an arrangement with their lenders.
Local real estate agents and brokers can also be valuable resources. But you may not find them eager to help because agents and brokers don’t automatically earn commissions on live auctions. However, these realtors can earn commissions through online auctions.
The best way to assess an auction property is to work with real estate agents, appraisers, contractors and others who understand construction and remodelling costs and can accurately estimate the property’s value and the cost of the work it needs.
Keep in mind that foreclosure auctions are often postponed or cancelled, even at the last minute. The lender might not have obtained all the paperwork it needs, or the borrower may have worked out a solution to avoid foreclosure.
The Bottom Line
Foreclosed homes may be financially appealing, but there are many obstacles to consider before buying. Also, just because a home is for sale at auction doesn’t mean that you’ll be able to get it at a good price (or that the home is a good deal at any price—it could be a money pit). But for savvy, intelligent, and motivated individuals, property auctions are worth exploring as a way to pick up a home or an investment property inexpensively.
That being said, consider non-auction properties as an alternative. “It can be possible to find a better deal when negotiating with a seller who has equity in a property and can negotiate on their own behalf without all of the auction’s affiliated penalties and fees,” Humes advises. “You may also have more competition at auctions from companies that purchase properties to flip as a business model. Auctioned homes are not always the best deal for the average homebuyer.”
If you’re interested in trying to pick up a bargain property at an auction, there’s a lot to learn. Auctions are a riskier way to purchase a property than through a real estate agent. It’s important to be extremely well-educated about the process and about the properties you are interested in bidding on. Working with a local real estate agent or broker to identify potential properties may help, though they may not be interested unless you can reach a compensation agreement.
Finally, make sure to thoroughly review all the auction rules and conduct due diligence on the property before you bid. Seek the counsel of a real estate attorney—ideally one experienced with foreclosure sales—to make sure you understand what your responsibilities and liabilities will be if you’re the winning bidder.