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Understanding Home Auctions

Tuesday, January 5th, 2016

Although most people prefer to buy a house through traditional means, it can still be important to understand home auctions. A home auction is a public properties sale that many homebuyers find easier and quicker than buying a home through a real estate agent. One of the most common reasons for auctioning a house includes foreclosure by a bank or the government.

If you are interested in buying a home through an auction, it is important to know the types of home auctions available. You should also understand how bidding and payment work at home auctions and how to prepare for home auctions.

Types of home auctions

There are three primary kinds of home auctions, known as minimum bid auctions, absolute auctions, and reserve auctions. A minimum bid auction starts at a specific price. An absolute auction awards the highest bidder with the property. A reserve auction is an event in which the lender may reject an offer, even if it comes from the highest bidder. In this type of home auction, the reserve price is not revealed to the bidders.

In some instances, the starting auction price may be the remaining mortgage balance or even a lower amount to entice people to start bidding. During a foreclosure auction, the lender is not allowed to profit from the sale, so many foreclosed homes are sold below their market value.

How bidding and payment work at home auctions

The bidding procedure at home auctions varies by state. Before attending an auction, familiarize yourself with the proper procedures in your particular state. In some states, the auction holder will require a specified amount of money to complete the purchase. If this set amount is required, bring a cashier’s check for the amount. In other states, bidders must bring a certain percentage of the bid amount, often 10%, to the auction. Then, the winner of the home auction can pay the remainder of the amount within a set period of time.

If the home auction allows financing, you can obtain pre-qualification ahead of time. Auction winners must undergo a property closing just as they would with a standard real estate transaction and must also pay for any associated auction fees.

How to prepare for home auctions

Before you attend a home auction, it is important to understand that many homes end up at auction because a prior owner had serious financial troubles. In many cases, the home have significant maintenance issues and, even at best, are often outdated. Some properties may not be available for tours prior to an auction. Some tenants forbid tours while other tenants are angry about their current situation and decide to trash or gut the place following the sale.

If tours are not allowed for a property of interest, drive by the home to learn as much as you can about it, as well as the neighborhood. You never know when the owner or tenant will decide to talk to you or if you will be able to talk to a helpful neighbor.

Finally, before you make a bid, make sure to investigate any liens against the real estate. An auction company will research the title prior to auction and share these details with potential bidders. The estimated market value of the home, the amount of money owed on it, and any other liens against the property are all public information. You can access these details at the county recorder’s office or through a realty property reports website. Before you make a bid, it is also critical to be prepared to pay for a property based on state regulations. If you withdraw after winning a property, you may have to face steep penalties.

Before attending a home auction, read up on state foreclosure laws. Many reputable real estate agents and attorneys are well versed in the process of home auctions and are happy to provide information to interested parties. You can also observe a home auction before you plan to bid to get a better idea of how the process works.

Before buying real estate, you should know all of the options available to you, including home auctions. At High Plains Auctioneers, our professional auction team handles every step of the auction process, from marketing to auction completion. To learn more about home auctions or other types of auctions, call us today at (806) 244-6776. You can also Contact Us by email for more information about our services and view our upcoming auctions.