Buying Foreclosure Property at Auction

There are positive and negative sides to buying foreclosure property at an auction.  On the positive side, most properties are sold well below comparable properties in the same area.  On the negative side, most foreclosure auctions require immediate cash and will not consider anyone who must obtain a loan in order to purchase the property.  In general, a foreclosure property acquired at auction can be a very good investment if bought well below market after including your repair costs.

Advantages of Buying Foreclosures at Auction

Bank foreclosure properties are generally sold at a discount because they are deemed as non-liquid assets by the bank.  Banks are only allowed to lend a certain ratio of their assets.  These foreclosed properties count against their assets and thus reduce the amount of new loans they can make.  The bank is in the lending business -- not the real estate business -- and wants to recoup as much of their loan amount as possible and get rid of the house.

Many foreclosed properties are sold to the highest bidder at auctions and it is quite possible to get one of these properties for anywhere from 65% to 85% of the price that was originally paid for the dwelling.  Buying a foreclosure property is a great way to break into the real estate market and to start investing--especially if you have a lot of cash that you can shell out all at once.

Disadvantages of Buying Foreclosures at Auction

Foreclosure properties are auctioned off to the highest bidder on the court house steps in many areas.  Those interested in purchasing a foreclosure property at auction will be required to show proof of financing as well as be able to put down a minimum of a ten percent cash deposit before that will even be deemed qualified to bid.  Some areas require 100% payment at the time of purchase in certified funds, so check with the trustee or agency handling the auction well before the auction date.  If you do not have a lot of money to invest immediately, this may not be the best place for you to acquire properties. 

A foreclosure property is purchased "as is'.  In other words, there might be repairs needed that are now your responsibility as well as code violations that you will need to resolve.  It is very possible that since the property was foreclosed on, the previous owner was unable to financially afford the basic maintenance of the property so you might have a great deal of work to do, and a lot of money to put out before the property is able to be lived in.

Some foreclosure sales allow for an inspection of the property whereas others do not.  If the utilities have already been turned off then you may have to do your own inspection with no water, electricity or heat available.  If this is the case then you will not have a clear-cut indication of whether or not the major utility systems in the home work well or not.   

In some cases there are still tenants or even the previous owners living in a property that has been foreclosed upon.  This means that as the new owner of the bank foreclosure property, the responsibility falls to you to evict anyone who is presently occupying the property.

In some instances the property will have been vacated but intentional damage has been done because the people were angry about having to leave the property.  This may mean that there are even more damages to contend with than first anticipated.  Make sure you buy the property far enough below market value to cover any expected repair costs.

Finding Foreclosures

Foreclosure properties scheduled for auction are announced in the local newspapers on a regular basis.  Many times a property will be bought by an investor or the loan brought current by the owner before it actually makes it to auction.  You can follow the properties in the paper or simplify the process by subscribing to a foreclosure data service that does this work and adds other convenient features to help you find properties that meet your criteria.

The two best services both offer a FREE 7 day trial.  They are:

Foreclosure.com and RealtyTrac.com