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Jak's avatar

What are some important things to know about house auctions?

Asked by Jak (3600points) June 6th, 2016

Just wondering. I keep seeing this house with a sign that says “auction coming soon”. I may be interested in a house in a year or two but my knowledge about this is zero.

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10 Answers

Aster's avatar

I’ve attended one. The auctioneer and the bidders stood outside and they began bidding on the house. If the winner fails to make the payments I don’t know what happens then.

Jaxk's avatar

You need to check about the requirement for bidding. Usually they require proof that you have cash. Also there are sometimes hidden liens on the house or occupants that need to be evicted. Remember that there is no title insurance (not that it really insures much) or inspections, so anything hidden is your responsibility.

Jak's avatar

@Aster do you know what the house sold for? @Jaxk how would one find out about leins? Or inspections? I know that there is freedpom of information but I’ve never really understood where to look for it.

ibstubro's avatar

You need to do your homework before considering buying a home at auction.

The requirements for someone able to auction real estate vary widely from state to state. When I say “widely”, I mean that like night and day.

Here in the Midwest the norm is 10% down the day of the sale, and the balance within 30 days. Meaning you have to be pre-approved, or a cash buyer.

Foreclosure and tax sales are very difficult placed to get a good deal because of the “Trump University” type hype that tell people they can buy houses for $10,000 and ‘flip’ them in a month for $100,000. BS

You can get some good deals on houses sold at auction to settle estate. A lot of that is the uncertainty of people combined with the nearly-cash requirement. We sold a nice little house on a double lot in a small town that I’d be happy to live in for $40,000. My brother bought a modern(ish) house in a rural subdivision for, I think, around $65,000 just a few years ago. I think his house if probably valued around $110–130,000 on today’s market.

You just have to be very diligent about knowing the laws, making sure the house is solid, and nailing down the financing before hand. The bank should go a long way toward keeping the deal honest in the process of pre-approving you for money. The bank can/should run a check for liens. A home inspection is a service you pay a professional for.

I paid for a home inspection and later realized that the inspector was a personal friend of the owner and the inspector failed to check things as small as if the ceiling fans worked, and as big as if the basement leaked. I never did find out if I had recourse.

Jaxk's avatar

@Jak – I’m not sure. I suppose you could go through a Title Company and have them do the title search but your paying for it whether you buy the house or not. Once you’ve won the bid, the house is yours regardless of any flaws. I went to a few auctions when I thought I wanted to be a ‘Real Estate Mogul’ but never put up the cash to even bid. All the possible problems scared me off. It’s a little risky and a lot of money. Of course the rewards can be well worth the risk but you need to know what you’re doing.

Jak's avatar

Thanks all. I don’t want to flip anything. Just a place to live with my family. I think I will attend a few of these auctions and get a feel for the flow. Cheers!

ibstubro's avatar

As I tried to say, there is a world of difference between a single house selling at auction to settle an estate, and a ‘sheriff’s’ sale, a ‘tax lien’ auction or a ‘home foreclosure’ auction. The “buying real estate on the court house steps” was a get-rich-quick-seminar scam where there’s a list of real estate that will be forcibly. I’ve seen lots of people chasing their tails trying to track these properties down looking for a bargain. If you buy a property for back taxes I believe the owner has 3 years to pay those taxes and retake the property. It’s a mess unless your business is flipping houses, IMO.

A family selling a house at auction in order to settle an estate is the ultimate “motivated seller” and I have seen a number of bargains (locally). Being able to come up with the full purchase price within 30 days is too much of a hurdle for many people. The biggest bargains I’ve seen were where an established family member was willing to back a family member in buying the house – i.e. a sibling or parent backed the initial loan. Quick, easy cash purchase.
My mother, in fact, backed my brother’s house, and the $40,000 house we sold at auction was backed by the buyer’s brother.

MollyMcGuire's avatar

First of all you need to know what kind of sale it is. Most real estate auctions are just another marketing scheme but some are tax sales. I’ve watched it closely since I’ve been down here. Every single time, the morning of the auc tion, it is canceled. Some interested soul called the agent/auctioneer and made an offer that was accepted. The psychology is very interesting here. In two cases I can remember from the last 18 months homes were for sale for over a year. A date was set for auction and it was highly advertised. Both times, the day of auction a “cancelled” sign goes up over the auc tion sign. When the house sits there day after for sale people stop paying attention to it, both in reality and in mls. A house for sale a year must have something wrong with it. Advertise an auction and people decide to make appointments to go see it before someone else buys it, and someone will make an offer which is perfectly legal. The agent may have integrity or may not. So you seeing ads saying “auction coming soon” is a way for the agent to get calls and have an opportunity to sell the property so he can “cancel” the auction. They wait until auction day to put the “canceled” sign up so that house hunters will continue to call. Also the neighbors try to get in on the action. There was a house for sale for over a year that I drove by regularly. One day an auction sign goes up, the next day all of the neighbors have FSBO signs in their yards.

Aster's avatar

@Jak I knew what it sold for at the time since we were bidding but I’ve forgotten. It was thirteen years ago.

Jak's avatar

OK. Thank you for the courtesy of answering me anyway.

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