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November 25, 2021

How Home Sale Auctions Work

Buying a house is likely one of the biggest investments you'll ever make. There are lots of homes available to suit your needs at an affordable price; you just have to know where to look. Keep reading to learn how home sale auctions work.

Types of Homes at Auctions

One of the greatest things about buying a home at an auction is you never know what you might come across. Everyone is able to auction their home for sale. Whether it be a 600-square-foot rental property or a 5,500-square-foot mansion, these homes are often bought at reasonable prices. Many homes are auctioned due to foreclosure. In an attempt to recoup some of the money a lender is out due to the owner not making their payments, the lender will auction the home. In other instances, a homeowner will auction a home in an attempt to avoid foreclosure.

According to The Nest, the homeowner has high hopes of the auction bids increasing the sale price of the home, leaving them some money leftover after paying off the home loan. In most instances, the auction will have a reserve price set, which is called a bid reserve. If no one meets this reserve, the home does not sell. In other instances, there is no bid reserve, meaning there is no minimum sales price requirement.

Buyer Registration

It's important to note that you must register to bid at a home auction sale. This registration usually occurs the day before the auction is scheduled to take place. In addition, you may have to supply a deposit to participate, with this deposit coming in the form of cash. The deposit requirement usually only applies to high-priced properties. In some instances, you may have to provide a bank-guarantee letter, as well. If you can't get a bank guarantee letter, a loan-qualification letter may suffice.

Inspecting the Property

Because most people don't want to bid on a home they haven't inspected, many auction companies will allow people to view the property before the auction takes place. You can even have an inspection performed on the property if you prefer. The inspection can be performed by you or a professional contractor. This allows you to pinpoint any damages, and it gives you the chance to decide whether or not you want to place a bid on the property. In some instances, no inspections are allowed, and the home is auctioned "as-is."

Day of the Auction

The auction itself will usually take place at the home or at the county courthouse, with the latter mainly applying to homes that are in foreclosure. You'll receive a bidding number along with a numbered paddle that you'll use to place your bids.

After the Auction

If you win the auction, you'll have to sign a purchase agreement, and your deposit is applied toward the purchase amount. If you don't win the auction, you will receive your deposit back. Keep in mind that, in addition to the purchase price, you'll likely be responsible for paying a sales commission. This commission is either a flat rate or a percentage of the purchase price. It's important to verify whether there is a lien on the home before you place a bid, according to Max Real Estate. If you win the auction, you may become responsible for the lien. To protect yourself from this, make sure you have title insurance.

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