I recently had the opportunity to purchase a townhome at a foreclosure auction. The auction was held in Orlando, Florida, organized by Auction dot com. This was my first time buying a house at auction and it was quite the learning experience. If you’re considering buying a property at a live auction, here are some tips to make sure you don’t lose money and make a smart investment.
1. Do your homework first.
There are certain days before the auction that you can inspect the properties that are up for auction.
Be sure to bring an inspector with you, have them do a quick appraisal of the property, and cover the main areas of risk, such as the roof, plumbing, and electrical. You may want to negotiate a reduced fee if the inspection is only limited to important areas.
2. Know your market.
You really need to know if the property you intend to bid on is in demand. If you intend to sell it fast, you need to know what you can sell it for and what your maximum bid price will need to be to secure your profit.
3. The day of the auction.
You will most likely need to present your driver’s license, a check, and a cash or check for usually $2,500.
When you bid, make sure you don’t get too excited and raise the price too quickly. Stand on the sidelines and see what the action is. If there are one or two bidders, you can get close to your maximum bid and many times you will be successful. However, there are no guarantees.
4. If you won the auction.
You can expect to sign a bunch of paperwork that the bank will need to sell you the property. The final purchase price is determined by your winning bid plus the auction fee, which is typically $2,500.
5. After the auction.
Prepare your property as quickly as possible. If you intend to flip it, post it on Craigslist and get it up on MLS as quickly as possible.
6. Financing
If you are buying with cash, you can use a partner in the funds to close and split the proceeds, unless you have the cash yourself.
If it’s a buy-and-hold, it may be wise to get financing at a fixed rate and sell the property on a lease option. Expect to put down at least a 20% down payment.
