Buying a house at auction can appear attractive if you want a great deal on your next home. However, there are more risks to choosing an auction for houses over the normal way of buying a home.

If you decide to buy at auction, there is a greater chance that the property hides a nasty surprise. But if you want a good deal, maybe this risk is acceptable.

We will review what you need to know when buying a home at auction.

Why are houses sold at auction?

Usually, homes find their way to auction due to foreclosure or unpaid property taxes. If the lender takes possession when the borrower defaults, they use auctions to recover the money owed.

A tax lien can be placed on the title if the owner doesn’t pay their property taxes. If this lien isn’t paid, the home can also be foreclosed.

Sometimes owners decide to sell their home as-is through an auction. This offers the seller a quick sale without having to worry about making repairs to the home.

Generally, these types of listings are more likely to be in a state of disrepair.

Why buying at auction is a good option

Buying at an auction can mean not visiting the house before bidding, leading to problems. Though there are many risks involved, there are some potential benefits:

Grabbing a bargain

The most obvious advantage is finding a bargain property. Houses can sell for a lot less through the auction. While considerable repairs are often required, buying a property can still be worth it.

Closing time is faster

The time between buying and closing is very fast with auction properties. The time frame for closing will be much quicker than a traditional sale. This can be an advantage to buyers who want a fast close

The dangers of auction buying

While the chance of a bargain can be a good motivator, you shouldn’t ignore the potential issues.

No inspections

Often it won’t be possible to inspect the property before bidding begins. This means you won’t be able to see inside and have a home inspection or appraisal carried out.

Buying a home like this increases the risks of a significant financial mistake. The lender is selling a home as-is with all its blemishes.

Can't physically check what you're buying

Besides not having a professional inspection, you might be unable to check if the home size is accurate or other features you expect.

Cash purchases

You often need the cash to pay for a home sold at auction. Most homes sold at an auction will not allow a buyer to procure financing.

Paperwork issues

Buying a home at auction offers less protection. The paperwork must be carefully read to ensure you understand your purchase. It is advisable to have a real estate attorney check the documents to ensure there aren’t problems.

How to buy a home at auction

You need to understand the buying process before choosing to use an auction.

Choosing an auction

There are online and physical auctions, though even physical auction listings will likely be available online. Sites like Auction.com will have information to help you find suitable future auctions.

Local government offices will have details of where foreclosures and other types of sales are reported. This should provide the most accurate information and some details of homes that might be auctioned soon.

You might also find auctions on real estate websites and in the multiple listing service (MLS), though you must work with a real estate agent to access that.

Research

You must research when you find an auction home listed that you might want to bid on. You can search public records or hire a title company to find liens that will be a problem if you win the auction.

You should visit the neighborhood and pass by the home to look. This should give you limited information about the property's condition and show whether it is occupied.

Previous listing information might also be a good thing to find. A real estate agent might be able to help with that and offer their opinion on the home and what it is worth.

Bidding

You need to register before bidding and ensure you understand the rules. When you start bidding, stick to the maximum amount you have decided the home is worth, and good luck.

Payment and fees

If you win the auction, there are usually minimum fees to pay. This might include a percentage of the purchase price, transfer, service, and online usage fees.

You will be expected to pay a deposit immediately and the full amount within a certain timeframe, which might only be 24 hours. You will lose your earnest money deposit and the home if you don't do this.

Final thoughts

Unless you are experienced in doing so, a real estate auction can be a risky proposition. Be vigilant in doing your research before entering the bidding process.

Bill Gassett is a nationally recognized real estate leader who has been helping people buy and sell MetroWest Massachusetts real estate for the past 35 years.

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