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Home > Home Buying Tips > Find Home Bargains on Foreclosure Auction

Find Home Bargains on Foreclosure Auction


The face of the real estate market is definitely changing. This past year, more homes were auctioned on the block than ever before in history. It is estimated that nearly $17 billion in homes were actually sold by private auction and that number does not even include the number of foreclosed properties which were sold at separate auctions.

Considering the massive $700 billion bailout bill, even more homes could be on the auction block soon. This is because the federal government is set to receive a ton of properties known as REO foreclosures. REO foreclosure is a real estate term which means real estate owned. In other words, these are homes which are owned by banks when they do not sale at a foreclosure auction.

The way that it traditionally works is that once a home has been foreclosed upon, a public auction is held. In most cases, professional investors tend to show up at the foreclosure auction and bit on the properties, rather than the general public. Professional investors are usually a bit more comfortable with possible issues such as unpaid taxes and the fact that they cannot inspect the interior of the home until after they have bought it.

Recently; however, there have been so many homes to hit the auction block and some of them remain unsold. There are some estimates that indicate barely more than 5% of properties have been sold through foreclosure auctions.

When the time comes for the government to purchase home loans which include a REO property, it is widely expected that the government will have little choice but to begin selling those homes at auction. There is certainly plenty of history to back up this supposition. The last time the federal government became involved in such a situation was when the savings and loan industry hit rock bottom. At that time the government also took ownership of a significant number of properties. The result? A massive auction.

Regardless of whether that actually takes place as many believe it will, there has already been a hike in the number of REO homes that are being auctioned by the lending firms that still hold them.

How much money can be saved by buying a home on the auction block? How does 20% of the appraised value sound? In some cases, properties are even selling for as low as 10% of the appraised value.

Of course, there are some things to be aware of when buying a home on the auction block. Traditionally, when a buyer purchases a home they are able to utilize a contract that allows for numerous contingencies. For example, they would maintain the right to terminate the contract if they are not able to receiving financing. They might also be able to terminate the deal if they have the home inspected and it does not pass.

With an auction, all of those protections are usually off the table. In fact, it is quite common for the buyer to not even be able to step foot inside the property until after they have already written the check. Although it varies from one firm to another, it is not uncommon for some firms to require a buyer to pay between 5% and 10% of the purchase price, in cash, as soon as the auction ends. The buyer then must be able to close within 30 days. In the event that the buyer is not able to obtain financing they will lose the property as well as the initial deposit they made.

One of the biggest reasons why a buyer may not be able to complete the deal or obtain financing is usually an appraisal that comes in too law. When the buyer is financing the purchase, the lender will usually want an appraisal of the property completed. Due to the fluid nature of real estate values at the current time it can be difficult to accurately gauge the true value of a property. As a result, a buyer may think they are getting a good deal by winning an auction at a particular bid, only to find out later that the property will not appraise high enough. The best way to avoid this problem is for the buyer to have an appraisal of the property conducted ahead of time when possible, even if it means paying a few hundred dollars out of pocket. It could be money that is well spent considering the low prices that many homes are selling for on the auction block today.


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