Purchasing a home at an auction is one of the best ways to acquire property for a very low price. That said, there are some common mistakes that people make when buying at auction.
We’re going to run through four of the most important things to keep in mind when you’re thinking about getting a home from an auction. Hopefully, the ideas below save you time, stress, and money.
Covering all of your bases is the best way to wind up with the perfect property at the best price. Let’s get started.
1. Do: View The Property However You Can
It’s easy to jump on an opportunity and get excited in the heat of the moment. The idea that something so valuable could go for such a low rate is enticing, but there’s always the chance that there are significant flaws with a property.
Doing your due diligence is more complicated because auctions are often held online or in public gathering spaces. While it’s rare that someone would just jump into something as significant as buying a home, but it happens.
buying property at auction typically means that you’re purchasing the home “as-is.” In a lot of cases, these homes are foreclosures, which means that there could be a period of time when the previous occupants are still inside.
It’s often the case that those individuals don’t want prospective buyers touring and entering their homes. So, you don’t get to go inside.
If you’re lucky, you’ll get a few detailed images online through the bank or a previous real estate listing. If the home’s been off of the market for a long time, though, you might not have that luxury.
While it’s not a great way to do things, the best thing you can do is to drive by the property. The way that the property is kept on the outside could be a good indication of what it’s like on the inside, but that’s not always the case.
So, the point is to research the home and get a glimpse of it however you can.
2. Don’t: Forget The Risks
An auctioned home is host to any number of potential liabilities. Some homes might be utterly wrecked on the inside even though the exterior looks relatively nice.
You might get a loan for $180,000, purchase the home, have it reappraised, and find that it’s only worth half of that. This isn’t common, and you can typically find homes that are worth the asking price.
That said, there’s always the chance that something is seriously wrong. That’s the risk you take when you purchase at auction. On the flip side of things, high risk often brings great rewards.
You could also find that the home is worth a lot more than you paid for it. Further, foreclosures are good opportunities to invest in remodels and renovations to increase resale value. Fix and flip projects were made for foreclosures, and you might get an excellent ROI out of the whole endeavor.
3. Do: Understand The Financing
Buying a home at auction is different from buying one the traditional way. At the auction, you’re expected to pay the full amount of the home upfront. This is a difficult thing to get the money for, especially in cases where you’re buying an expensive home.
Buying a house at auction with a mortgage is possible in some cases, though, which makes things easier.
Some auctions may let you put some money down and give the rest later, but the turnaround time is still high. You should shop around for mortgage brokers and find ways that you might be able to get preapproved and have the money available in a short amount of time.
Again, it’s normal for auctioneers to require payment right away, so check with the seller to find out what their options are. One thing to note, though, is that there’s no guarantee that the property will hold up to the sale value.
This brings us to our next point.
4. Don’t: Get Lost in Bidding
There’s a reason that banks and sellers don’t get rid of foreclosed homes on the market. Auctioning things is an excellent way to get a lot more money for them than they’re worth.
On the other hand, it’s an opportunity for buyers to close in on good deals when there aren’t a lot of bidders present. That said, the consecutive raising of the price gives the buyer time to sink into their decision to purchase.
You bid at one rate, then you’re outbid. You’ve already committed to the purchase, so you start raising your number. As you approach the number that you had in mind as a limit, you start to rationalize the reasons why you need the property.
Then, your ceiling starts to nudge up and up until you’re bidding an unreasonable amount of money for a property that you’ve never been inside of. The same idea applies to gambling in the “sunk cost fallacy.”
It’s the idea that because you’ve already put a lot of money into something, you should just keep doubling down to try and make up for your losses. The smart thing to do is stop and take what you have left without losing any more.
In the case of auctions, though, it’s a little bit different. You haven’t truly “lost” any money, but you’re digging deeper into what you’ve allowed yourself to spend. The thinking goes, “I’ve already pushed my limit this much, so there’s no use stopping now.”
The best way to get around this is to set a clear limit for spending and bring someone along with you. Ideally, this person is someone who’s invested in the decision as well such as a partner or family member who cares for you.
Want to Learn More About Buying at Auction?
Buying at auction might be a great idea for you. It’s important to keep your wits about you throughout the process, though. We’re here to help you with more insights.
Explore our site for more ideas on buying a house at auction, buying at auction with a mortgage, managing your finances, and much more.