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What to Know Before Buying a Foreclosure Home at an Auction
What to Know Before Buying a Foreclosure Home at an Auction

Review this guide to best prepare you to purchase a home at a Foreclosure auction.

Zoe Z Littlejohn avatar
Written by Zoe Z Littlejohn
Updated over a week ago

Whether you’re looking to buy a home for investment purposes or to live in, you may have considered buying a foreclosure house at auction. Buying foreclosure homes may be a smart way to invest in real estate at a lower price point, but there are risks worth considering. To help you ensure you make an educated offer, we’ve created this guide on what to know before buying a foreclosure home at auction.

What Is a Foreclosure Home?

Before diving into foreclosure auctions, let’s define a foreclosure home first. A real estate property that is in a foreclosure auction is a home that has been seized after the homeowner failed to make multiple mortgage payments or property tax payments. The mortgage lender will then sell the property to another person or entity when this occurs to attempt to recover the negative balance. The process of a property going into foreclosure status is often lengthy, with the actual foreclosure being the final step. It’s important to note that foreclosure laws vary by state.

How Are Foreclosure Home Auctions Conducted?

Knowing how foreclosure auctions work can help you create a strategy to buy a foreclosure home. The standard process you can expect when going to a foreclosure auction is as follows:

  1. Announcement of property: The first step in a foreclosure auction is when the property is announced.

  2. Bidding: After the property is announced, buyers can place their bids. In some cases, an estimated starting bid will be available before the auction. However, It’s always important to do your due diligence on the property to prepare to participate in the foreclosure auction and gauge your highest and best offer. Typically, the auction will begin with the auctioneer starting the bidding. From there, the bidding will continue, and once the highest bid is made, a winning bidder may be named.

  3. Final sale: The sale process will begin immediately if the winning bid is accepted. This is where the winning and accepted bidder will provide their proof of funds, pay the deposit amount, sign any necessary documents, and receive further instruction if required. For the sale to be successful, the winning bidder must provide the total deposit amount at the time of the auction. The bidder will not be able to leave the auction site to secure more funds.

What to Know Before Buying a Foreclosure Home at an Auction

Now that you know how foreclosure auctions work, educating yourself on what to know before buying a foreclosure house at auction is essential. Below are a few helpful tips:

  • Know the meaning of “as is, sight unseen: One of the first things you should know when buying a foreclosure home is that you will purchase the house “as is, sight unseen.” This means you won’t be able to view the property beforehand and take a tour. Instead, you will purchase the home and anything that comes with it, such as any potential damage, liens, or titles. Additionally, no repairs will be made to the property before the auction.

  • Stages of foreclosure: There are different stages of a foreclosure home that you should be aware of, such as:

    • Pre-foreclosure: Where borrowers are in default before the home is up for sale.

    • Foreclosure: Where the property is being sold to help the lender recover money owed.

    • Bank-Owned/ REO: Where the property did not sell in a foreclosure auction and may be listed on the MLS.

  • Conduct Due Diligence: While foreclosed homes are sold as is, you can still do your due diligence by working with a real estate attorney to conduct a title search to uncover any vital information about the property, such as finding any liens or titles on the property as well as pull public records available on the property from the county assessor.

How to Prepare to Buy a Foreclosure Home at an Auction

With a solid understanding of what to expect when buying a foreclosure home, you’ll be able to start preparing for your purchase. Here are some tips that can help you understand how to buy a foreclosure home:

Knowing about each auction type can help you choose one that best matches your goals and preferences. The types of auctions include:

  • Absolute auctions: In an absolute auction, the highest bidder wins

  • Reserve auctions: In a reserve auction, the lender will have a minimum price that they will be willing to accept.

  • Minimum bid auctions: In a minimum bid auction, there will be a minimum acceptable bid amount.

  • Lender confirmation auctions: In a lender confirmation auction, a bidder must be screened and vetted first. The bid will only be accepted after the mortgage holder has approved the bid.

  • Total debt auctions: In a total debt auction, bidders will bid amounts that will cover the total mortgage debt on the property.

Prepare your financing

When going to an auction, you need to have proof of funds should you win a bid. Foreclosure auctions are always cash-only, so bidders must bring a cashier’s check with their deposit amount to participate in an auction. Bidders will also need to bring a government-issued photo ID. The total deposit amount or total amount to bring to the auction varies by state. You can review the “What to Bring to Auction” section on the Property Details Page to learn more about the specific auction requirements.

Create a bidding strategy

It’s essential to have a bidding strategy in place when attending in-person foreclosure auctions. Creating a bidding strategy can help you ensure you’re bidding on foreclosure homes that align with your goals and are sold at a fair market value, ensuring you get a reasonable price. If you’re bidding at an auction house, some strategies to consider include knowing your price limit, observing the body language of other bidders, and making an aggressive starting bid.

Research the properties

Although you will not be able to see these properties in person, you can take the time beforehand to research the foreclosure home. Through a simple online search, you can often find relevant information on the properties up at auction, such as the year built, square footage, acreage, and more. ServiceLink Auction makes it easy to compare foreclosure homes and find property information with our Market Analysis information provided on every property we have for sale. In addition to conducting online research, it is also important to pull a title report and any public records on the property.

Visit ServiceLink Auction Resources for More Information

At ServiceLink Auction, we make it easy to bid on foreclosure homes. If you want to learn more about buying foreclosure homes or bidding at auction, browse our foreclosure properties and our Learning Center to find articles and resources that provide helpful information.

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