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Real Estate Auctions – 21 Tips for Home Buyers

August 9, 2008

by Brandon Cornett

You are probably already aware of the rise in home foreclosures that has occurred in recent months. After all, it has been in the news almost daily for several months now.

But what you may not know is that many of the properties that get foreclosed upon end up being sold at real estate auctions for less than market value. What this means to you, as a home buyer, is that you can often save a lot of money by purchasing a home at auction (instead of buying it through a traditional real estate transaction).

With that in mind, I would like to offer you 21 important points about this topic. There are some of the things you should know before attempting to buy a home at a real estate auction.

21 Things You Should Know

1. The process leading up to a foreclosure can last up to five months. It starts when the homeowner defaults on the loan, but it can drag on through various stages, depending on what state you are in.

2. Because of this lengthy process, you need to be flexible, patient and persistent, all at the same time.

3. At some point, the lender will file a notice of default against the homeowner, which formally begins the process of foreclosure.

4. From a legal perspective, there are two types of foreclosures — the judicial and the non-judicial. As you would imagine, the former takes place in court and the latter takes place outside of court.

5. Most foreclosures in this country are of the non-judicial variety, meaning they never go to court before a judge.

6. The non-judicial variety is also referred to as a “power of sale” foreclosure. It allows the trustee to sell the property more quickly (on behalf of the lender) by avoiding a court process.

7. During the pre-foreclosure stage, the homeowner may work with the lender to get back on track with his or her mortgage payments.

8. Also during this stage, the homeowner could sell the home before the bank forecloses on it, typically through what’s known as a real estate short sale process.

9. If the homeowner fails to (A) get back on track with mortgage payments or (B) sell the house via short sale, the property will move along the path to a real estate auction.

10. About 20 days before the real estate auction is to take place, a notice of sale will be posted for public viewing.

11. In most cases, the notice of sale is posted at the county courthouse (in the county where the foreclosed property is located).

12. In most cases, the actual auction will also take place at the county courthouse.

13. In addition to the notice of public sale (which is a minimum requirement), the lender will announce the auction event through other channels as well, because…

14. The lender wants a good turnout at the event, because having a lot of qualified bidders will increase the likelihood of a quick sale.

15. The lender wants a quick sale above all else, because they are losing money and wasting other resources by keeping the non-performing (unpaid) loan on their books.

16. In true auction fashion, the attendees will bid on the property and it will eventually be sold to the highest bidder.

17. After the home is sold, a deed will be given to the successful bidder. This person is now the new owner.

18. The starting price for a home being sold at auction is normally based on the amount owed to the lender (combined with other expenses the lender might have incurred when foreclosing on the property).

19. Overbidding is a common mistake among first-time attendees. This will drive up the price of the home and defeat the purpose of buying through an auction. The purpose for investors is to obtain a property below market value.

20. In most scenarios, attendees must have financing lined up before they will be allowed to bid on a property. For obvious reasons, real estate auctions are typically cash-based.

21. Most homes sold in this way are sold as-is with no warranties of any kind. So if you have the chance to inspect the property before bidding on it (even if it’s just a cursory walkthrough), take that opportunity.

Obviously this article does not cover everything you need to know about buying a home through a real estate auction. Entire books have been written on the subject, and you should read those too. But this article will help you understand the basic process that takes place, and therefore shall serve as a good jumping-off point for your further research.

With that in mind, I recommend you print it out and highlight the areas where your knowledge is lacking. Then, learn as much as you can about those areas. Good luck!

About the Author: Brandon Cornett publishes the Home Buying Institute, a website full of advice on mortgages loans, house hunting, credit scores and more. Learn more or contact the author by visiting www.homebuyinginstitute.com

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