Mortgage Loan – Should You Buy a House at Auction?

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Mortgage Loan – Should You Buy a House at Auction?. Real estate auctions can be attractive if you’re seeking a bargain and don’t mind some extra legwork. You’ll have to learn how the auction procedure works, as good as track down houses and navigate the purchase without a real estate agent.

After the sale, the property might have got to be rehabbed, and you may even be liable for kicking out tenants. You could also have to pay off additional estate liens.

If you’re comfortable with the risks, here’s what else you should know about how real estate auctions work:

What is a real estate auction?

Pros and cons of shopping for at auction

How to locate real estate auctions

How buying a dwelling at auction works

What is a real estate auction?

A real estate auction involves the general public sale of a estate by way of competitive bidding.

The such a lot typical reasons for real estate auctions include:

Mortgage foreclosures

Unpaid estate taxes

Unpaid homeowners association fees

Estate sales

Auctions possibly held in individual or online. They’re typically run by using the sheriff or another county official, but there are also companies that specialize in auctioning real estate on behalf of banks, governments, and estates.

Pros and cons of shopping for at auction

Buying a home at auction is a totally extraordinary journey from buying a domestic the traditional way. The kind of person that would want to try purchasing their estate via auction is usually financially savvy and can afford the hazards that come with an auctioned home.

Before you devote to purchasing a home at auction, make sure you understand the benefits and drawbacks of the process.


It’s attainable to get a dwelling for cheap. The biggest potential benefit of buying a domestic at a real estate auction is that you would possibly get a well deal at the purchase price. In theory, you can purchase an auction property for as little as the amount owed to a tax authority, mortgage lender, or HOA, which might in simple terms be a few thousand dollars on a property valued at a few hundred thousand dollars.

There probably much less opposition for properties. It’s easy to buy a home by using searching real estate listing websites and hiring an agent who can aid you through the traditional purchasing process. Fewer persons know how to buy a estate by way of an auction. Circumstances will vary by using location and rely upon factors such as local stock and investor activity.


You might not recognize a lot about the property’s condition. Once you purchase an auction property, you might not be able to conduct a home inspection ahead of time. You’ll be stuck with whatever costly problems you get – including dealing with any liens on the estate – because the property would be bought as-is. But some dealers do allow for inspections ahead of the auction date.

You’ll want cash. To gain bidding privileges, you may must pay a refundable cash deposit earlier than the auction begins. Then, you may have to pay on your purchase via cash, licensed check, or wire transfer immediately after the auction ends or within a few hours to a few days. Less commonly, you probably able to finance the purchase.

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How to find real estate auctions

You can locate real estate auctions with the aid of searching on line for €œreal estate auction€ plus the name of the county you want to buy property in.

Here are some regular places you’ll uncover on line listings and auction details:

Auction websites and real estate websites, such as Bid4Assets,, and Hubzu

County courtroom websites

County sheriff websites

County treasurer or tax collector websites

The United States Treasury Department’s seized real property auctions website

How buying a home at auction works

Before COVID-19, in-person real estate auctions have been common. In the course of the pandemic, however, some counties have been canceling their auctions or moving them online.

In addition, the suspension of mortgage foreclosure awarded for by means of the CARES Act has restricted the number of houses for auction.

You don’t usually need a real estate agent to purchase a home via auction. However, they probably able that will help you locate, research, and even bid on properties, as well as finalize the sale.

If you discover a domestic up for auction that you’re involved in, comply with those steps:

Step 1: Do your research

Some auction residences allow for inspections by means of appointment. However, estate inspections are now not always allowed on auction properties, especially occupied ones. Now not being able to inspect a property earlier than purchase places you at a major disadvantage.

The auction entity will advise bidders to investigate any name or lien concerns earlier than bidding. A property that’s being auctioned as a result of unpaid taxes could also have a lien against it from delinquent HOA dues or an unpaid contractor.

Tip: Determine with name companies to determine whether they’ll quandary identify insurance for the property and, if so, what the policy’s limitations will be.

Step 2: Find out if you can finance the home

It probably attainable to finance an auction estate with a home loan. You won’t be able to make an provide contingent on mortgage financing, though, so you’ll have to get pre-approved.

Discuss your plans with the vendor and lender to work out how soon you’d be able to close the loan and pay the seller in case you win. A estate that’s not safe to stay in would require some kind of home development loan.

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Tip: Some auctions will in simple terms accept payment via cash or hard funds loan. You perhaps able to do a cash-out refinance to mortgage the valuables afterward, but that won’t disguise your up-front costs.

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Step 3: Decide how much you’re willing to bid

First, investigate how a lot cash you can afford to spend at the property considering many dwelling auctions are cash only.

Next, look at what different houses in the area have bought for recently. See how their fees compare to the home you’re interested in.

Tip: To account for unknown expenses, don’t set your maximum bid at 100% of the property’s value. Discount it with the aid of some amount so that your purchase cost plus any bidder’s fees and fees to repair the valuables or clear the name won’t positioned you over your budget.

For example, you might want to bid not more than 80% of what similar residences in good situation have bought for.

However, there’s no hard and fast rule on what to pay. It depends on your budget, threat tolerance, and plans for the property. Don’t let emotions push you beyond your price range.

Step 4: Make your deposit

To show that you’re serious, you’ll have to make a cash deposit to participate within the auction. Deposit necessities vary, however.

For example: You would have to place down $2,500 or 5% of the starting bid, whichever is higher. A cashier’s determine or wire transfer probably allowed in lieu of cash.

For an on line auction, you may have to provide a credit score card number. The seller could reserve the correct to charge a cancellation fee on your card in case you win an auction yet don’t pay for the property.

Step 5: Make your bid

If you’re the triumphing bidder, you’ll have to fulfill key payment deadlines to safe your private home deed. A deposit will be due almost immediately after the auction closes. The balance would be due almost immediately after that.

For example: In case you win an on-line auction, you would possibly have to deposit 10% of your triumphing bid, minus the deposit you paid at registration, inside 3 business days. Then, you may have another three company days to pay the balance.

You might also owe a bidder’s price of 5% to 10% of the purchase price to the auctioning entity. Remaining fees would apply, too.

If you fail to fulfill the payment deadlines, here might occur:

The seller might cancel your contract

You’ll lose your deposit

You might have to pay the difference if the home is later sold at auction for a greater price

You’ll lose bidding privileges with the auction entity both temporarily or permanently

Keep Reading: 10 Mistakes to Hinder as a First-Time Homebuyer


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