What's the "catch" to buying homes at an auction?

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What's the "catch" to buying homes at an auction?

Michael ClarkBusiness Member
Real Estate Agent · Scranton, PA · Member since 2022 · 13 posts · 7 votes

It seems like going to the local auction is almost too good to be true. I sat through one about a year ago and so many of these properties were selling at such a heavy discount. Forgive me if the answer is obvious, I'm only just starting my investment journey and trying to learn as much as I can. 

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
4y
Quote from @Nathan Gesner:
Quote from @Michael Clark:

When something seems to good to be true...

There's no opportunity to inspect, so you have no idea what the condition will be like after purchase. Will it need new flooring? Paint? Has the roof been leaking and filled the home with mold? Are the previous owners/occupants still living there? If so, will they cooperate and leave after the sale goes through? If not, what will it cost to get them out? Are there any liens on the property? Did the previous occupant steal all the cabinets, fixtures, plumbing, doors, etc?

There are a lot of unknowns so you have to do a lot of homework to ensure it's a clean sale, then you need cash on hand to purchase, then you need cash on hand to renovate.


in all my court house buys and its in the 200 plus range.. I have had everything from  stripped of everything of value to broom clean with a note that we hope we enjoy the home LOL.. and everything in between.. Deals are different in different markets as well. in some small counties that are not investor dominated there can be some better deals less bidders in big cities or markets there is going to be a lot of sophisticated cashed up competition .. For most its best to let the asset go through the process then get listed by the REO broker then low ball those.
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  • Angela Jones
    Member since 2022 · 10 posts · 14 votes
    4y

    I'm interested to know as well! Other than the obvious- having cash and not being able to assess the property...

    2Reply
  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    4y
    Quote from @Michael Clark:

    It seems like going to the local auction is almost too good to be true. I sat through one about a year ago and so many of these properties were selling at such a heavy discount. Forgive me if the answer is obvious, I'm only just starting my investment journey and trying to learn as much as I can. 


    Most foreclosure properties sell at a discount because you have no idea what the interiors look like. Being involved in non performing notes, I would say that it is a rarity when a property is foreclosed on that needs less than $30-50K worth of work. This is for smaller properties (under 1500sf). I would estimate you will spend $30/sf rehabbing them. After plugging that number in, let me know if you think they are still a discount. We have sold homes that I shake my head what people have paid for them

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  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    4y
    Quote from @Michael Clark:

    When something seems to good to be true...

    There's no opportunity to inspect, so you have no idea what the condition will be like after purchase. Will it need new flooring? Paint? Has the roof been leaking and filled the home with mold? Are the previous owners/occupants still living there? If so, will they cooperate and leave after the sale goes through? If not, what will it cost to get them out? Are there any liens on the property? Did the previous occupant steal all the cabinets, fixtures, plumbing, doors, etc?

    There are a lot of unknowns so you have to do a lot of homework to ensure it's a clean sale, then you need cash on hand to purchase, then you need cash on hand to renovate.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    4y
    Quote from @Nathan Gesner:
    Quote from @Michael Clark:

    When something seems to good to be true...

    There's no opportunity to inspect, so you have no idea what the condition will be like after purchase. Will it need new flooring? Paint? Has the roof been leaking and filled the home with mold? Are the previous owners/occupants still living there? If so, will they cooperate and leave after the sale goes through? If not, what will it cost to get them out? Are there any liens on the property? Did the previous occupant steal all the cabinets, fixtures, plumbing, doors, etc?

    There are a lot of unknowns so you have to do a lot of homework to ensure it's a clean sale, then you need cash on hand to purchase, then you need cash on hand to renovate.


    in all my court house buys and its in the 200 plus range.. I have had everything from  stripped of everything of value to broom clean with a note that we hope we enjoy the home LOL.. and everything in between.. Deals are different in different markets as well. in some small counties that are not investor dominated there can be some better deals less bidders in big cities or markets there is going to be a lot of sophisticated cashed up competition .. For most its best to let the asset go through the process then get listed by the REO broker then low ball those.
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  • Sergey A. Petrov
    Real Estate Consultant · Seattle, WA · Member since 2022 · 1k+ posts · 784 votes
    4y

    Everything everybody else said plus what type of auction is it? Mortgage co? County for unpaid taxes? Condo / homeowners association for unpaid assessments? Each one of those comes with a variety of liens you may be inheriting. A title search will help on that end.

    0Reply
  • Linda S.
    Investor · Richmond, VA · Member since 2016 · 1k+ posts · 2k+ votes
    4y

    @Michael Clark,

    The catch is that it's bought sight unseen.  You can try peaking in through the windows, but you don't have an inspection period.  It's also cash only, so there is no backing out.

      One house I got at an auction, was literately an episode of hoarders--- there were clothes/stuff, piled roughly 3ft high throughout the 1000 sq ft house.  It was crazy, i mean piles and piles of stuff where you can't even walk. One house I got was pure luck, and without a doubt, one of my best buys!   If you do an auction, be ready for pretty much everything to be wrong-- expect HVAC stolen/pipes blocked/rot/pests/stuff.   If you do an auction, you just have to be okay with the gamble that you might be buying a lemon with a ton of problems!

    1Reply
  • Mary Jay
    Glendale, AZ · Member since 2017 · 1k+ posts · 238 votes
    4y
    Quote from @Sergey A. Petrov:

    Everything everybody else said plus what type of auction is it? Mortgage co? County for unpaid taxes? Condo / homeowners association for unpaid assessments? Each one of those comes with a variety of liens you may be inheriting. A title search will help on that end.


     this is the biggest catch of all: liens

    2Reply
  • Jeff S.
    Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes
    4y

    The catch is you need a lot of cash and you need to know what you are doing. People have bought at auction thinking they got a screaming deal only to find out they bought a 2nd and there is a huge mortgage underneath which means no equity. Beware if you are the only one bidding. Sometimes you learn the hard way and this is not a friendly place like BP is.

    0Reply
  • Henry T.
    Member since 2022 · 1k+ posts · 1k+ votes
    4y
    Quote from @Mary Jay:
    Quote from @Sergey A. Petrov:

    Everything everybody else said plus what type of auction is it? Mortgage co? County for unpaid taxes? Condo / homeowners association for unpaid assessments? Each one of those comes with a variety of liens you may be inheriting. A title search will help on that end.


     this is the biggest catch of all: liens


    If it's a courthouse steps auction, there are no liens. I haven't been to one for 10 years, but this was the rule. Liens are wiped.

    0Reply
  • Account Closed
    Rental Property Investor · Brooke Park Drive · Member since 2018 · 1k+ posts · 2k+ votes
    4y

    I bought my first auction recently for $63.5k. Exterior looked exceptional. Interior rehab expected at $26.5k. ARV $120k and cash out 90k. No catches yet knock on wood.

    0Reply
  • InYoung Choung
    Member since 2022 · 20 posts · 6 votes
    4y

    @Chris Seveney Hi Chris, I am a newbie here. Are all foreclosed homes sold through auctions? Or what are the ways to buy foreclosed homes?

    0Reply
  • Alex Case
    Member since 2022 · 45 posts · 17 votes
    4y
    Quote from @Mary Jay:
    Quote from @Sergey A. Petrov:

    Everything everybody else said plus what type of auction is it? Mortgage co? County for unpaid taxes? Condo / homeowners association for unpaid assessments? Each one of those comes with a variety of liens you may be inheriting. A title search will help on that end.


     this is the biggest catch of all: liens     

    he is 100% RIGHT!!


    0Reply
  • E.S. Burrell
    Rental Property Investor · MI · Member since 2019 · 192 posts · 205 votes
    4y

    @Michael Clark

    Last year I bought my first tax foreclosed SFH online. No liens because the county owned the home. I paid too much for it though. I had to "break in" and change the locks; it was a disaster but not a total rehab. Missing furnace, missing hot water heater, etc. It took three months to get it "right". It passed inspections. It's now rented out at market rent. Furnace and water heater were bought new but everything else was either purchased used or things I wanted to get rid of from my own personal property.

    I would do it again. I would not recommend buying a foreclosed house that is not vacant. You will have to evict the occupants. But like others said, do your homework.

    0Reply
  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    4y
    Quote from @Henry T.:
    Quote from @Mary Jay:
    Quote from @Sergey A. Petrov:

    Everything everybody else said plus what type of auction is it? Mortgage co? County for unpaid taxes? Condo / homeowners association for unpaid assessments? Each one of those comes with a variety of liens you may be inheriting. A title search will help on that end.


     this is the biggest catch of all: liens


    If it's a courthouse steps auction, there are no liens. I haven't been to one for 10 years, but this was the rule. Liens are wiped.

    Absolutely not….auctions can be for hoa debts, 2nd mtgs, other judgment related auctions…all will still have the 1 st mtg attached.
    1Reply
  • Chad U.
    Investor · Boca Raton, FL · Member since 2012 · 1k+ posts · 1k+ votes
    4y
    Quote from @Wayne Brooks:
    Quote from @Henry T.:
    Quote from @Mary Jay:
    Quote from @Sergey A. Petrov:

    Everything everybody else said plus what type of auction is it? Mortgage co? County for unpaid taxes? Condo / homeowners association for unpaid assessments? Each one of those comes with a variety of liens you may be inheriting. A title search will help on that end.


     this is the biggest catch of all: liens


    If it's a courthouse steps auction, there are no liens. I haven't been to one for 10 years, but this was the rule. Liens are wiped.

    Absolutely not….auctions can be for hoa debts, 2nd mtgs, other judgment related auctions…all will still have the 1 st mtg attached.

     Not to mention involuntary liens which remain with the property indefinitely 

    0Reply
  • Tom GimerBusiness Member
    DMV · Member since 2017 · 3k+ posts · 3k+ votes
    4y

    Or intervening liens that were not discovered and properly noticed by the substitute trustees before the sale.

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  • Isaiah Gabaldon
    Contractor · San Diego, CA · Member since 2022 · 16 posts · 7 votes
    4y

    @Michael Clark I currently live in San diego and auctions are very competitive. I'm seeing properties go for about 20k under zestimate on 1.1 million houses. I'm sure it's not like that in other cities but good luck

    0Reply
  • Eliott Elias
    Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
    4y

    You don't get to see the condition of the house. Have been to a few auctions lately and the deals don't look that great. 

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    4y
    Quote from @Jeff S.:

    The catch is you need a lot of cash and you need to know what you are doing. People have bought at auction thinking they got a screaming deal only to find out they bought a 2nd and there is a huge mortgage underneath which means no equity. Beware if you are the only one bidding. Sometimes you learn the hard way and this is not a friendly place like BP is.


     this is how I learned of senior tax deferral in Oregon..  It was a Multnomah county sale and frankly my strong suit was Washington and Clackamas .. but anyway there was a house up on Council Crest area of PDX and I could not figure out why I was the only one bidding  LOL.. turned out it had 90k in Senior tax deferral.. And you can only find Senior tax deferral by calling a special number at teh county tax collector it does not pop up on a title report or date down..  We got out of it as we did a major reno to it.. but what should have been a 6 figure profit was just a modest profit just lucky we did not lose. So,  for a ton  of work and money out .  Had my gals from then on call every one we where going to bid on and double check .. would run into occasionally. sometimes it was OK but other times its a non starter.  

    I have watched others buy seconds though as you noted.. NOt real often but it happens One bidder I was nice enough to warn them.. but they just kind of stared and me I think they thought I was trying to snake the deal for myself and they just bid it and handed over the cashiers check.. And there are no do overs that money is gone forever. 

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