What You Need to Know Before Buying a House at Auction

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You Could Win Big

Because few potential homebuyers know about homes that are up for auction and even fewer can afford to participate, buying a house at auction can mean huge savings, because competition has been reduced. 

Related: 25 Tips for Buying a Car at Auction

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Foreclosure Sales Are Just the Start

These days, all kinds of motivated sellers choose to put homes up for auction. Want to find a great deal on a luxury property? You may be just a few clicks and a few million dollars a way. Sites such as Elite Auctions specialize in getting fancy homes sold within a tidy timeframe. 

Related: Absolutely Massive Homes Listed for Less Than $100,000

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'As Is' Is the Name of the Game

While private auction houses might host open houses, many foreclosure auctions don’t allow bidders to inspect a property ... like at all. An old roof? A bad foundation? Termites? Water damage? The winning bidder is on the hook for all of it. “The condition of the property is a series of detective work and guessing,” Amuchastegui says.

Related: 30 Questions You Need to Ask at Your Home Inspection

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See What You Can

When a property’s interior is off limits, checking out the exterior becomes that much more important. Keeping in mind trespassing laws, investigating the outside of a house could give you some clue about its overall shape.

Related: 30 Questions You Need to Ask at Your Home Inspection

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Cash Is King

While rules vary, often the winning bidder of a live foreclosure auction will be required to pay in cash. Because it takes so much money on hand to bid, participants are typically high-rolling, experienced investors. 

Related: 14 Situations Where Cash Beats Credit

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Rules Are Strict

Frequently, a large refundable deposit is required before you can raise a paddle with the big guns. The auctioneer needs to know that you’re a serious bidder who can afford to follow through if you win.

Related: Watch Out for These Added Costs When Buying a House

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Online Auctions Are on a Roll

Most foreclosure auctions still take place live on the proverbial, or actual, courthouse steps. But the number of online auctions is growing fast, with the pandemic accelerating this trend. And while it might feel perversely thrilling to buy a home from your iPhone, online auctions can mean more competition and thus higher prices. 

Related: 25 Unusual and Rare Items That Sold at Auction for Serious Money

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The Auction Isn’t Always the End

At a foreclosure auction, if nobody bids on a property or the reserve isn’t met, the home is turned over to the bank to sell as an REO, a real estate owned property. That means a losing bidder might have a second chance to strike a deal when the bank lists the house or puts it up for auction … the next time. 

Related: 14 Things Real Estate Agents Don’t Want You to Know

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A Trial Run Could Be Fun

Just like auditing a class or a test driving a car, it’s wise to attend auctions as a spectator before jumping into the auction game. Property Radar, a pay-for-use real estate research site, also encourages “practicing on paper” first: Investigate a property, set an imaginary minimum and maximum bids, and follow up to see what the actual winning bid was. 

Related: I Just Bought My First Home at Age 47 and This is What I've Learned

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Title Searches Can Save You

Once you’ve identified a property you’re interested in bidding on, you’ll want to know all you can about it. A title search, which a title company can run for as little as $100, will reveal whether there are liens on the house that could fall to you, such as unpaid property taxes.

Related: 11 Things That Can Go Wrong When Closing on a House

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Properties Might Be Occupied

You may be unpleasantly surprised to discover that a house you just bought at auction is not vacant. If the previous owners or squatters refuse to leave, you might have to lawyer up to get them out. 

Related:32 Ways You’re Ruining Your Home and Don't Even Know It

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There Are Significant Advantages

Despite the risks associated with buying a house at auction, there are major perks, such as being among the first to know about a hot property and the speed of the transaction. It might take months to negotiate the terms of a traditional real estate deal, while an auction sale happens at the drop of a gavel. (It could be several more weeks until the closing.)   

Related: New Rules for Buying and Selling a Home During the Pandemic

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Then Again … Maybe It’s a Bad Idea

Plenty of real estate insiders caution against buying a home at auction unless you’re a seasoned pro. “There are so many things that can go wrong,” says Adam Sikorski, a broker for Compass in New York. “There are better opportunities to target stale or expired listings with a strong local broker.” But if you educate yourself and really do your research, who knows? Amuchastegui says, “I've seen newbies get rich and experienced investors lose.”

Related: When Is Bankruptcy An Option?