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.