Do you have the right stuff tobuy a houseat auction? A very popular show on the HGTV network is “Flip or Flop,” in which a married couple purchases a home at auction. Then they gut it, renovate it and sell it for a profit – or at least they hope. Of course, because it is a television show, they make it look easy. In truth, buying a home at an auction can indeed be a quick purchase. However, there are many other factors that you should take into consideration when thinking about buying a home at an auction.
Consider the Source When Buying a House at an Auction
The first thing you need to understand to buy a house at an auction is that it is usually a bank or lending institution that is conducting the sale. In other words, it is rarely the homeowner selling their property. That will mean that the home has beenin foreclosurefor some time, and may also have been neglected.
If the homeowner gives up hope of staying in that house, then they’re not really going to care what happens to the roof, flooring, plumbing, or electric. They could also create all kinds of damage – intentional and unintentional – as they leave the home. All of this falls under the category of “buyer beware.”
Sight Unseen
It is important to consider the source of that home being put up for auction because you might not get a chance to look at the property. While some auctions have an open house and allow prospective buyers to view the property, you won’t be able to conduct a thorough inspection as you would with a typical home purchase. In other auctions, you might only be able to drive by the property and see it from the outside. That should have you asking, “What are they hiding?”
Unless you are able to look inside the home, there is a good chance you’ll bedoing some renovationsbefore moving in. That is an additional cost you’ll have to factor into your purchase. There is also the time factor to think about. Will your current work schedule allow you to supervise or DIY the renovations?
Cash Is King When Buying a House at an Auction
A home that is being sold by auction requires you to pay the purchase price in cash. That will mean having a potentially large sum of money in the form of a cashier’s check at the ready. You will also have to take care of the auction fees associated with the sale. In some instances, there might even be liens on the property that you will have to assume. You should know all of that before making a bid.
There are some auctions that let prospective buyers use financing for the purchase. However, you would be in a stronger position if you were preapproved for the amount. Don’t be surprised if you show up at an auction and are squaring off against real estate investors with deep pockets.
A Better Price
The risks associated with buying a home at auction are also what often make them such a smart purchase. You’ll find that many people are scared off by a foreclosed property. That will often drive the price down and allow you to swoop in and score a major deal. This is especially true for a foreclosed home in a good neighborhood. If location matters and all you’re dealing with are cosmetic fixes, then this could be a very good deal.
Buying a House at an Auction Can Be a Fast Sale
As you might expect, a home auction will happen very quickly. You could literally see a property that is put on the block on a Monday and by Wednesday be the winning bidder. Keep in mind that just because you are the winning doesn’t automatically mean you’ll get the house. The lending company that holds the title will still have to approve the bid. Often, they are happy to get that asset off their books so there shouldn’t be a problem.
Working With a Broker
Are you on your own with a home auction? That depends. There are many qualified brokers who will be happy to help guide you on the process to buy a house at an auction. If this is your first time buying a home, then you could benefit from that kind of support. An experienced broker will have been through this process many times.
You could also opt to stick with areputable auction brokerage. These companies specialize in these types of transactions. They are also a terrific resource for upcoming auctions. That will matter if you lose out on your first pick.
Buying a home at an auction can be a lot of fun. Although you might be going up against a few seasoned pros, that shouldn’t diminish your excitement about buying a home. Whether it is for yourself or as an investment, auctions could be the best path forward.
FAQs
Make sure to inspect the item for any damage, things that don't look original, maker marks or signatures, quality, and that the lot number is correct. While viewing the items at the preview, decide which items you want to bid on and which ones you don't.
What makes a good auction house? ›
Customer service: An auction house should be dedicated to its buyers and sellers. It should walk you through every step of the consignment process and make selling your item as convenient as possible. Item guarantees: A reputable auction house should guarantee its items for authenticity and condition.
What to know financially when buying a house? ›
A careful review of your current and future spending can help you determine what home you can afford. Start with the industry recommendations: Total debt payments, including a future mortgage, should be less than 36% of your pre-tax income. Total monthly housing costs should be less than 28% of your pre-tax income.
Is it better to auction or sell a house? ›
Sellers who want to sell quickly, who are going through a major transition or change in their lives, or who want to get the best price possible for their property within a certain window of time should consider an auction. Property: The property itself can influence whether or not an auction is the best route to take.
Is it better to bid early or late in an auction? ›
All we can do in this regard is to urge you to place your bids early.” “There are inherent risks in sniping. If you wait too long to bid, the auction could close before your bid is processed. If your maximum doesn't beat the current high bidder, you won't have a second chance to up the ante.
What are the disadvantages of buying a house on auction? ›
Auction properties often do not allow a home inspection or give you any legal way to view the interior in person. If you cannot afford the risk of buying a property in poor condition, stick with auctions that allow you to inspect the property before bidding.
What percentage do most auction houses take? ›
Typically, auctioneers charge around 10% to 20% of the gross sales as their commission. Sometimes, they might also receive bonuses depending on the specific deal. It's important to note that auctioneer fees can be subject to state laws, with some states setting maximum rates, while others have no specific limits.
Why do people choose to auction their house? ›
Why do these houses go to auction? Properties go to auction because they're a quicker and easier way to sell properties. This makes auctions a great fit for sellers who want (or need) to sell more quickly than usual.
How much money should you have in the bank when you buy a house? ›
A good number to shoot for when saving for a house is 25% of the sale price to cover your down payment, closing costs and moving expenses. (This amount is separate from saving up 3–6 months of your typical living expenses in a fully-funded emergency fund—which I recommend you do first, before saving up for a home.)
How much money should you make a year before buying a house? ›
Now, Americans must earn roughly $106,500 in order to comfortably afford a typical home, a significant increase from the $59,000 annual household income that put homeownership within reach for families in 2020, according to new research from digital real estate company Zillow.
For your target mortgage payments, start with your gross monthly income — your monthly pay before things like taxes get taken out. Multiply that number by 0.28 to figure out 28% of it. Ideally, you want to keep your mortgage payments at or below that amount. For your down payment, shoot for 20% of the price if you can.
What happens if you don't sell at auction? ›
The remainders are either sold prior to the auction or passed in. When committing to the auction process it is important to remember that getting passed in is not the end of the world, and that you can still receive an amazing price for your property if the auction falls through.
Are auctions a good idea? ›
The Benefits of Buying and Selling at Auction
Because there are multiple sellers at an auction, there will be a large selection of items and often unique ones that you wouldn't be able to find elsewhere. This alone can make purchasing items from an auction worth it.
How to sell at an auction house? ›
Get a Valuation, or an 'In-House Estimate'
We ask for photos of the object from different angles, and a detailed description including a history of any damage, marks or signatures. Auction houses will physically need to see the item for further investigation, in order to provide the most accurate estimate.
What to expect at your first auction? ›
In most cases, you'll be required to register before you're allowed to bid. You'll have to bring identification (like your driver's license), and sometimes you'll also have to provide a credit card to pay for any items you choose to buy. You'll get a bidder number when you register.
Why do auctioneers say I'm out? ›
If the auctioneer says that he's "out here" or that "the bid's in the room" it means exactly that, the commission bidders or the phone bidders have been outbid and the current highest bidder is present in the room.
What sells the most at an auction? ›
Antiques, fine artwork, and classic jewelry see the best returns at an auction most of the time. If you're managing the estate for a deceased loved one and wondering which items of theirs would be worth auctioning, you're more than welcome to call and ask us for assistance.
