You can get a “steal of a deal” buying a home at auction, according to Rob Friedman, chairman of Real Estate Disposition Corp. If this is your first time doing so, however, you have much to learn if you don’t want to be the one who's robbed. You can end up with a terrific bargain -- or you can get more problems than you bargained for if you buy the wrong house.
Attend an auction without intent to buy. Auctions can be intimidating for newbies. People who bid can use unique signals, and the bidding process often goes quickly, according to Friedman. It also could be intimidating to see seasoned buyers who bring a million dollars' worth of checks along. After attending a couple of auctions just to observe, you’ll know what to expect and can concentrate on your own business.
View the house. Buying a property sight unseen is risky because you won’t know the condition of the house. Find out whether you can get the address of the property so you can inspect the house before auction. You won’t be able to get inside, but you can view the exterior and peek in. If you're lucky, you might receive some information from a neighbor. If the outside is trashed, you can logically assume the inside is the same.
Attend open houses. Some auctions have open houses before the auction. Attend them with a contractor if you don’t have that kind of experience. He can give you an estimate on how much repairs will cost. Add this amount to the purchase price to determine whether your deal is still a steal.
Compare comps. Consider the neighborhood and look up what other homes have sold for within the last three months -- not what the sellers are asking. This also helps you determine whether you're getting a bargain house. Typically, you want a house that is 20 percent or more below market value.
Run a title search at the county courthouse. This tells you whether the house has liens, a second mortgage or past-due property taxes, all of which you might be responsible for boosting the house's price.
Bring a certified check if required. Before attending the auction, determine how much you should bring. For example, Friedman says bidders typically bring a certified check for $5,000 made payable to themselves to show they intend to buy. If you win the bid, you sign the check to the auction house. If not, you take back your check. Many auctions require you to pay in full the same day; others require 10 percent that day and the remainder within a specified time frame. Find out in advance what the auction you will attend requires, and bring your checkbook or certified check.
Have several houses in mind. You have a better chance of buying a house at auction when you don’t have your heart set on only one. Research many properties until you come up with a list of about 10 houses you'd be happy to own, recommends Friedman. Bring the list of potential houses with you to auction. Ideally, you would have seen all the houses in person, taken pictures of them and listed pertinent information next to each photograph. This helps to keep you from becoming confused at auction.
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