Is It Safe To Buy Real Estate At Auction?

House made of cash

I realize there are a lot of real estate “flippers” out there. With all of the television programs on it makes it all look almost too easy. Most flippers will tell you that buying the property is the hardest part. Most successful flippers will also say, buying a property is when you make your money. You have to buy it right and make sure you do not over pay for the property.

 

One way many people purchase real estate is through auctions. It is exciting, potentially rewarding and can be fraught with danger; all in equal measure.

 

Buying the traditional way, of finding a property for sale with an a realtor, see Taylor Estate Agents for example, comes with a certain level of comfort and a lot more information about your prospective purchase than you often get with an auction. Still, there may be good reason to buy real estate at an auction.

 

The good, bad and the ugly

 

As well as being a memorable spaghetti western, it is a fairly apt description of what you get when you venture down the auction route.

 

There is no question there are definitely some auction bargains out there. You might be able to buy a home or investment property at a substantial discount compared to its market value. Keep in mind there could be a number of reasons why the price is low, such as foreclosure, or it could be that the property needs some serious renovation.

 

Those are the good and the bad scenarios. The ugly part would be when you buy a property at auction, and then find out there are some substantial problems that are going to take some serious cash to repair.

 

There are pros and cons attached to buying at an auction. Whether you are buying a home to live in or an investment property, you need to be aware and understand the risks as well as the benefits.

 

Why do sellers sell at an auction?

 

One of the primary questions that you need to ask is why the property is being sold at an auction?

 

There are a number of perfectly plausible reasons why the seller might have chosen to dispose of their property this way.

 

  1. Being able to offload their property within a specific timeframe can be attractive to a seller who wants to achieve a quick disposal, especially if they are incurring finance and maintenance costs while the property is still under their ownership.

 

  1. Selling at an auction also helps to eliminate what could be numerous showings, which can be time consuming.

 

  1. If there is competition in the marketplace, the auction process could help drive up the price.

 

If you are able to ask questions to find out why the seller is using an auction to sell their property, by all means do so. This process can help you to gauge whether there are any potential issues, such as structural defects, or whether they are simply looking to get a quick and efficient sale.

 

Why you might want to buy through an auction

 

  1. The most obvious attraction is a low price. Being able to buy a property at a price below market value is always going to be a good for business; provided there are no subsequent problems discovered with your investment.

 

  1. Being a buyer at an auction gives you an element of control, as you can set your limit when bidding and if the price goes over that figure, you can always walk away.

 

  1. If you are looking to acquire a business property that you need in a hurry, buying at an auction gives you a confirmed sale date that you can work to, if your bid is accepted.

 

Buyer beware

 

As a buyer at an auction, it is entirely your responsibility to do your homework and check out the condition of the property you are thinking about buying, BEFORE parting with your cash.

 

Homes sold at an auction are on an “as is” condition basis. Once the hammer drops and you are the successful bidder, you are legally contracted to complete the purchase, even if you find out that the property is not in a state of repair that you expected.

 

Make sure you get clear title

 

Your priority when buying at an auction is to ensure that you get clear title, which means there are no ownership disputes or legal issues that could present a problem afterwards.

 

It is possible that a property being sold at an auction might have some title issues, such as undisclosed owners or liens. Make sure that you make the right enquiries through a title company BEFORE the auction, so that you know exactly what you are getting when you bid.

 

If you are buying a home that is a foreclosure, you should also be aware that some states do offer the foreclosed owner a right of redemption period. This means that they have a specified amount of time to get their house back, by paying you back what you paid plus interest, which could result in you losing the money spent on repairs in the meantime, so do check that possibility out as well. As mentioned, buying at auctions can be risky business.

 

So should you buy real estate at a real estate auction? If you are looking for a good price and are willing to do the extra leg work involved in finding out why the property is being sold this way, and it’s condition, auctions could be just the thing for you.

 

Jay Ashton works at a land and property auctioneer’s, a job he has been in for several years now. He enjoys sharing his knowledge and is always happy to answer questions from those just learning the ropes.

In case you are interested in buying a property in an Asian jurisdiction, our Singapore partners.


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