Foreclosure Auctions: The Dos and Don’ts

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It hadn’t been a week when I had made my post about foreclosure auctions when what arrives in my snail mail box but my insurance company’s quarterly newsletter. The newsletter is usually not a big deal but this issue devoted an entire page to buying foreclosures at auction.

The article highlighted 4 dos and 2 don’ts. I am of the opinion that this is such a hot topic that repeating those 6 items is worth the time it takes to read them. Besides, some folks may have missed that last post and the excellent comments made by BP readers.

Buying Foreclosures at Auction: The Don’t’s

I like the way they put comfortable and risk in the same sentence; it reads, “Don’t buy property at auction unless you are comfortable with substantial risk.” For the uninitiated, properties at auction have something called inherent risk. This means you could buying a pig in a poke if you don’t do your homework. More on that in a moment.

By the way, if you like REO’s, you have eliminated almost all of the risk that you would face from an auction property. I say “almost” because not every bank REO is a jewel in tattered clothing.

Their second ‘don’t’ was not to make an offer before you inspect the house. This is so obvious it appears it doesn’t warrant mentioning. As I said in a post about two months ago, one of my friend’s sons didn’t bother with an inspection and wound up losing his arse. If you don’t know what to look for when you go to inspect the property, hire an inspector. It may cost you three figures but it is better than losing 5 figures.

Buying Foreclosures at Auction: The Dos

Their number one do was: DO YOUR HOMEWORK. Yep, I’m shouting. If you think this is too much work or not worth your time, please send me your email address so I can let you know where to send your check. I think it is only fair I get your money rather than some unknown auction company.

Their second do was to drive a hard bargain. I’m not sure you can do that at an auction unless the owners are desparate to rid themselves of the property at any cost. Remember, this is an auction. The bidding may become ferocious and if you aren’t careful you could get caught up in that bidding frenzy.

They also recommend working with a real estate agent familiar and experienced in foreclosures and who can access MLS data. Having been a real estate broker, I can state first hand the number of agents I encountered that weren’t familiar and experienced in the foreclosure process outnumbered those who are.

Not slamming the profession just stating fact. I can’t remember the number of agents who would ask me and my partner how do you make money in foreclosures. They simply couldn’t see the silver in the clouds.

Their last do was to get financing before you go foreclosure shopping. I think this is a superb idea for two reasons. One, you know what you qualify for in the way of money to spend and two, you know your limits should you decide to buy.

Almost The Last Word

Just because shockingly low home prices are reality, doesn’t mean you will encounter a super bargain in the foreclosure arena, whether it be auction, listing or REO. If you are impulsive or uneducated, chances are excellent you will be holding a deed to a money pit. I don’t know about you but the only pit I like is a barbeque pit.

Photo: howieluvzus

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  1. Tom,

    I am also a former real estate agent and I highly agree with your recommendation that individuals looking to purchase these types of riskier investments should get the assistance of a Realtor who specializes in it.

    When I was a real estate agent, very few of the agents were familiar enough with the foreclosure guidelines to be of much help to potential investors. Those agents who took the time to “figure out the system” were always the go-to person for these types of deals (and they cleaned up because of it).

    I also worked in a mortgage company and found that if a real estate agents wasn’t involved in the transaction, that it had a MUCH higher chance of not closing (for a variety of reasons).

    So real estate investors new to investing in foreclosures should get the advice from a QUALIFIED real estate professional.


    John Stanley

  2. John – thank you for your input. No slam against RE agents or brokers but far too many don’t know the ins and outs of foreclosure investing.

    To Josh – great question. My choice of preference is simply to ask the person if he or she knows anything about foreclosure investing. A professional will not say yes if they don’t. If (s)he says yes, I would ask a few questions. I would want to know the extent of their REO database and what forms each of those lenders wants in addition to the standard paperwork. That’s for starters. If all they did was list the property, I’d shy away from this person.

    A personal experience from here in Reno. This very nice RE agent had the listing and when I started asking a question or two, she simply couldn’t answer them. In fact, her idea of buying an REO was to submit the paperwork at full asking price and hope the bank would sell. She had no idea who at the bank made the final decision nor did she know how to get in touch with that person, or at least that department.

    I would imagine anyone who dabbles in foreclosures knows the questions they would ask so I’ll stop here. Remember, if you don’t ask, you usuall get what you deserve.

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