Hello all and thank you advance for taking the time to read this, i will try and make it brief:
i found a foreclosed auction home i am interested in buying for myself, it says Listed by bank 250k, foreclosure auction 268k, listed for sale 255k, and loan issue 325k, and i am new to all of this and want to learn and know what is the actual price going into the auction, what i might have to pay etc.? it says on zillow the home MAY (Zillow may not be the exact amount but guestimate) 360k, so i am really wanting to try but wondering input and thoughts on the example above would be good or not? Big thanks for again taking the time to read and answer :)
Rental Property Investor · Steamboat Springs, CO · Member since 2017 · 255 posts · 154 votes
7y
Usually when a bank sells a house they foreclosed on, they want to sell it for at least as much as they're owed on the mortgage.
So if the house was purchased for 100K, the previous owner put 25K down, the bank issued a mortgage for 75K. Now the bank foreclosed, so they want their money back. Ideally, they want full market value for the house and would want to sell for 100K again. But, maybe they'd sell it for 75K just to ensure they get their money back. They're not going to want to sell at 50K, though.
Obviously there are exceptions, and banks do sometimes sell at a loss, but knowing the previous loan amount lets you know what the bank's floor might look like.
Most online auctions are going to start at a low teaser bid, but the bank (or other seller) will establish a reserve price, so if the bidding doesn't get that high, nobody wins and they can redo the auction or try to sell it a different way. The auction site will tell you the starting bid before the auction actually starts. The reserve may or may not be published (but usually isn't).
So, you're not going to know for sure what you can get the house for, or what the bank is willing to do. At best, you can make an educated guess. My advice is to ignore the starting bid, reserve, etc. Figure out what you think the ARV on the house is, figure out what your maximum bid is where you're very conservative and positive you would make money at that price, and then don't bid over that price. If it doesn't hit reserve and they re-run the auction, bid that same amount again. Just keep bidding up to your max value, and if you don't get the house, on to the next one.
Specialist · Carlsbad, CA · Member since 2018 · 1k+ posts · 638 votes
7y
@Steven Balderrama Welcome to BiggerPockets!! Foreclosure auctions can be pretty tricky and only seasoned investors make are able to make great purchases. These auctions tend to take experience to maneuver properly. My advice would be to hire a realtor to help you with your situation. You will buy as is so there is no telling what to expect.