For buyers looking to score potential deals or unique investment opportunities, house auctions present an alternative path to homeownership.
House auctions, or foreclosure auctions, remain a significant segment of the real estate market. But how do housing auctions work, and what should potential buyers consider before bidding? Here’s what you need to know about buying a house at auction.
A house auction is a public sale where properties are sold to the highest bidder, often due to foreclosure, tax liens, or financial distress. Some of the most common reasons for homes to be auctioned include:
Foreclosures: When a homeowner defaults on their mortgage, lenders may take ownership of and sell the mortgaged property in an auction to recover the amount they’re owed.
Tax delinquencies: When homeowners fail to pay property taxes, local governments may place a tax lien on the home. If the debt remains unpaid, the government may auction the property to recoup the owed taxes.
Estate sales: When heirs inherit a property they don’t want to keep, they may opt to sell it at auction. Estate sales can occur due to financial constraints, family disputes, or simply a desire for a quick sale.
Bank-owned properties (REOs): If a home fails to sell at a foreclosure auction, it becomes real estate owned (REO) or bank-owned by the lender. The bank may then auction the property in an effort to recover some of its losses.
Not all housing auctions operate the same way; some guarantee a sale to the highest bidder, while others set minimum price requirements or allow sellers to reject bids. How bids are placed at an auction can significantly impact your buying approach. An auction with an open bid allows you to see and react to competitors’ offers, while an auction with a blind bid keeps all amounts hidden until the sale is final. Knowing the differences can help you strategize effectively when bidding on a house to buy at auction.
Here’s a breakdown of the three most common types of real estate auctions.
Absolute Auction: The highest bid wins, regardless of price.
Minimum Bid Auction: The auction starts at a predetermined minimum bid.
Reserve Auction: The seller sets a hidden reserve price, and bids must meet or exceed it for a sale to occur.
There are two primary bidding structures at auction:
Opening bidding: Bidders can see and respond to each other’s offers.
Blind bidding: Bidders submit offers without knowing competing bids.
Successfully purchasing a home at auction requires preparation, strategy, and financial readiness. From researching properties to securing financing and placing a winning bid, each step plays a crucial role in ensuring a smooth transaction. Follow these five key steps to navigate the auction process with confidence.
In most regions, notices about upcoming auctions are published online or in the local paper. Of course, you can also find pre-foreclosures and bank-owned properties for free through Zillow. Zillow also posts foreclosure auction information on homes, including location, date and time. Be aware that auction dates often change or are postponed, so be sure to confirm specifics with the lender’s attorney or the trustee.
If you win this property at auction, will you live in the house? Fix it and resell it? Rent it out? Your plans for the property will affect your maximum bid price.
Remember that your bid at the auction is absolute; there is no backing out, and you typically won’t be able to inspect the home until after you’ve purchased it. If you think basic repairs for a house will run $15,000, you don't want to end up paying $130,000 at auction if the move-in-ready home next door is listed at $140,000.
Make a set of photos and info sheets for each property — along with your top bid — just to avoid confusion on auction day.
Auction purchases often require immediate funds, so go into the day knowing your financing is secured. Most real estate auction contracts have no financing contingencies. In a nutshell, “no contingencies” means that you have to secure funds or financing prior to the auction. You must be pre-approved and not pre-qualified for a loan. A pre-approval requires a prospective buyer to produce more documentation, fill out an application with a lender, and disclose their financial background to the seller.
If you’re ready for a pre-approval, apply for a mortgage with a lender near you. When you apply for financing, request the highest amount you would be willing to spend on the property. Do your homework to figure out what the property is worth and contrast that with what you’re able to afford. Take into account the potential competing bids that you may encounter, plus additional fees and closing costs.
Registering for an auction is a crucial step, as you’ll need to meet specific requirements before being allowed to participate. Each auction house or online platform has its own process, but here are some common steps you may have to take to register:
If you win, be prepared to pay a deposit, which is usually 5-20% of the property’s value, within three days and complete the remaining payment within the required timeframe.
Arrive on time the day of the auction because the action moves quickly and being late could mean you miss out. Observe the first few sales. Early properties often sell for less, because bidders are gauging pricing trends. Pay close attention to what the auctioneer says. Phrases like “subject to all liens” can mean additional financial obligations. Know your limits and stick to your predetermined budget to avoid a bidding war.
What to know about the closing process: Most real estate auction sales close within 30-45 days. Unlike traditional home sales, auction closings rarely experience delays. This fast timeline requires buyers to have financing secured and paperwork ready. Missing deadlines can lead to losing both the home and your deposit.
Buying a house at auction can be an exciting opportunity to secure a property at a potentially lower price, but it also comes with risks. While some buyers enjoy the speed and competitive pricing, others may struggle with limited property access and financial uncertainties. Before diving in, it’s essential to weigh the advantages and disadvantages.
Buying a house at auction can be rewarding, but it’s not for everyone. By doing thorough research, setting a firm budget, securing financing, and staying disciplined at the auction block, you can successfully navigate the world of housing auctions and potentially score a great deal on your next home.
However, if you prefer inspections, contingencies, and a less pressured process, traditional home buying may be a better fit. Our Premier Agent partners are ready to help you find and buy a home you’ll love.
A local agent can help you stay competitive on a budget.
They’ll help you get an edge without stretching your finances.
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