What are Foreclosure Auctions?
The auction is the stage of the foreclosure process after the pre-foreclosure phase of the property has ended. You can attend an auction (typically at the steps of the county courthouse) and bid on the home, just like any other auction. During an auction, the lender is seeking to recapture its losses by auctioning the property in a public sale to the highest bidder.
You will have a great advantage by addressing a few challenges that sometimes scare other foreclosed homes shoppers away. At an auction sale, buyers are typically required to deposit a cash earnest fee or 10% of the expected sales price in cash prior to bidding, and most require bidders to show an ability to pay the balance before accepting bids. Bidders may have limited time to research the property beforehand. A little effort can help you overcome these challenges, and by doing so, you can benefit from by saving big money on the home purchase price. Foreclosure auctions can offer some of the best bargains of all foreclosures, often times as much as 35 to 50 percent below market value.
Another advantage of buying foreclosure properties at auction: junior liens are removed. This means the claims on the property below the senior lien level (such as the original first mortgage) are wiped out and eliminated by the auction process. You need to be very careful to understand all liens against a pre-foreclosure before you engage in an auction, however. Perform a thorough title search first. You certainly don’t want to win the bid and be surprised by the remaining lien for which you will now be liable.
There is usually far less competition from bidders at foreclosure auctions than from other, later stage foreclosure sales. It comes down to the buyer’s interest in doing some extra work and possibly taking a higher risk in exchange for amazingly low winning purchase bids. For instance, REO properties may be in move in condition and generating more interest from buyers looking for turn-key homes. Titles are already cleared for REO bank foreclosures, so there is less risk and upfront work for buyers to do as well. However, because the homes at auction are still early in the process, there is less pressure to generate a profit on the sales price. For example, to make up for interest losses, rehabilitation and agent fees for a bank, an REO foreclosure may be sold at a significantly higher price, sometimes 30% or more, than the same house would otherwise sell for at auction.
How do you find Foreclosure Auctions?
Ultra Foreclosures collects information on available foreclosed homes auctions and posts them for users of our site. There is no need to spend time searching newspapers and county records for the next local auction calendar. Because we constantly update our database of all available foreclosure activity, we make it quick and easy for members to find all the auctions available in the foreclosure listings.
Auctions are most often held in a place easily accessible by the public. In most cases, the auctions are conducted rather informally in front of the county courthouse. While there are certain requirements and processes to follow to register for an auction (contact your local courthouse to see their rules), you may find yourself simply offering bids on the steps of the courthouse on auction day! In some cases, in non-judicial states, foreclosure auctions may be held in any public location. In other situations, a ballroom may be rented and professional auctioneers brought in to hold the event.
In any case, a real estate foreclosure auction can generate lots of excitement. It is important to attend a few auctions in advance as an observer only. This way, you will gain an understanding of the process and avoid letting your emotions drive your bidding. The key to successful bidding is to do as much research in advance on the pre foreclosures going to auction. Understand the highest possible value that makes sense for you based on the home’s condition, market conditions and your ability to pay. Maintain discipline to avoid going above your absolute highest bid price and keep a businesslike attitude throughout the auction. This will help keep you on the path to profit most during this stage of the foreclosure process.
How to profit from Foreclosure Auctions
You will secure the greatest profit by winning an auction with your lowest bid. It’s worth repeating that you watch your emotions and not get overly excited during the bidding process. Do all your proper real estate research in advance and stick with your absolute upper limit on bid price. If you “lose” a property because bidding went above your limit, you really came out a winner because you did not pay more for the foreclosure than you think it is worth. Also be wary of shill bidders, who can artificially run up bid prices. Shills are outsiders who are paid by a third party to continue driving bid prices higher. This practice is generally not acceptable at auction, but it can be difficult to enforce against. For these reasons, keep a firm commitment to your maximum price and avoid temptation to exceed it. This will help you lock in the profit you desire.
To find maximum profit, consider a quick re-sale. Homes acquired from foreclosure auctions at a cheap price offer great re-sale opportunity. By factoring in any rehab costs upfront, and doing the work quickly, your low bid will provide a nice profit margin on the re-sale. By buying the house directly at auction, you have also cut out a possible middleman. Middlemen get involved from banks and the government when homes fail to sell at auction and instead become REO bank foreclosures or government repossessed homes. Without these complicating and costly middle parties involved, you can take profit that would otherwise cover their costs.
A little more upfront risk and legwork is involved with foreclosure auctions. However, the potential gains in profit are very attractive for investors looking to re-sell.