What You Need to Know When Buying Property at Auction

Trustee auctions have become popular in many areas due to the large number of foreclosure properties. It used to be that no one but the lender who holds the note showed up at the auction, but nowadays many investors and buyers are doing so. It can be a great way to get a good deal on a home, but there are some caveats of which you need to be aware before doing so.

Know the neighborhood and comparable sold properties therein. You need to do your homework on the value of the home. Make sure the property is not in a neighborhood where there are numerous foreclosures, as that is an indication that values may still be falling.

Get title reports and any other reports. It is imperative that you get a title report. Unlike a traditional sale where the buyer cannot close escrow without a title company guarantee of clear title, it is up to you to make sure the property is free of liens and encumbrances. Contact a title company well in advance of auction.

Inspect if possible. In many instances you are not able to access the property, nor have a home inspection. This is perhaps one of the biggest problems with purchasing at auction. Many skilled investors, who have teams of people with whom they work to rehabilitate homes, can assess from a drive by and peek through the windows what type of work will need to be completed, since they do this often. If you are a first time home buyer or new to auctions it is advisable to proceed with extreme caution if you are unable to enter a home and have an inspection.

Learn about auction procedure and local/state law. Try to learn as much as you can about procedure before attending an auction–this includes state laws on foreclosures and the bidding process (which can vary). There are some resources online and you can also speak with investors who are familiar with the process. Many lenders have websites detailing the process. State laws on foreclosures are a good place to start. The best advice is to attend an auction as an observer beforehand to see how the process goes.

Bring multiple checks and necessary documentation. In a trustee auction you need to have the entire purchase amount with you. Often you may need to increase your bid, so you will need to have multiple checks. Keep in mind the checks have to be bank checks, not personal checks, so you have to come prepared. Check the auctioning lender’s website to find out specifically what else you will need to bring with you on auction day–do your homework and come prepared.

Be prepared for scheduling conflicts. Many properties are assigned an auction date but then rescheduled. I know of people who had all their checks and documentation ready, only to learn at the last minute that the auction was canceled. Make sure to check with the lender for daily updates on the status of the property.

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