Buying Foreclosure Home at Auction: Tips to Handle the Risks
As the number of people making fortunes in real estate flipping became
well known in the last few years the idea of purchasing property for low
prices at foreclosure sales and then reselling for a high profit became
particularly appealing to many. Before you consider buying
foreclosure home at auction sales; however, there are a few
guidelines of which you should be aware in order to avoid more problems
than you might have bargained for.
The sheer number of home auctions has recently begun to sky rocket. As
the housing market continues to settle foreclosures have increased.
Today it is entirely possible to find homes selling for as loss as 60%
of their fair market value. This can be quite attractive; however, you
must make an effort to make sure you know what you're getting into
before you buy a foreclosure house.
One of the biggest drawbacks to buying foreclosure homes at auction is
the fact that you usually have a very short time frame in which you can
act. Generally, the time frame from which the property is listed for
sale and when it is auction is quite short. This means that you have
very little time in which to investigate the property and perform a
title search, check on the quality of the property and even check on
unpaid back taxes. Keep in mind that in the case of the latter, if there
are outstanding tax liabilities you will be responsible for them as the
new owner. In some cases, these tax liabilities can be significant and
make what you thought was a great deal suddenly not so wonderful.
If the home is still occupied, which is commonly the case, you may find
it very difficult to inspect the property prior to the auction. Quite
simply, most homeowners facing foreclosure are not going to be very
willing to allow someone into their home and inspect it. As a result,
you will often be buying a foreclosure house sight unseen, at least as
far as the interior is concerned.
If you are short on cash you will also likely have a problem even buying
the foreclosure home. Most areas require you to pay in cash at the time
of the auction when you buy a property in foreclosure.
Given all of the drawbacks associated with buying a foreclosure home at
auction, you may find yourself wondering why it would even be worth it
to face the risks. For many the prospect of purchasing a $300,000
foreclosure house for as little as $225,000 or even less at auction is
quite appealing. During the last six months alone the number of auction
sale notices and bank repossessions has surged. In some areas, auction
sales have increased by as much as 30%. It is speculated the
foreclosures will continue to rise and as they increase, auction sale
prices are expected to go even lower.
If you do intend to try to take advantage of such a deal, it is
important to find out as much critical information as possible.
First, find out who is living at the property; if anyone. Remember that
if anyone is living at the property and you are the successful buyer
then you will be responsible for removing the occupants. In some cases,
this may not always be the previous owners. You could be facing the
eviction of renters, friends or relatives of the owners or in some
cases, even squatters.
You should also keep in mind that the foreclosure home you purchase
truly is being purchased 'as is.' This means that you will have no
guarantee of the condition of the home. It is not uncommon for some
owners to simply stop maintaining the home when they realize they are
about to lose it through foreclosure or to even deliberately damage it.
Make sure that you are buying the foreclosure house at enough of a
bargain to account for repairs which may need to be made to the property
and still sell for a profit.
Buying foreclosed homes is certainly not for the squeamish. You must
make sure you have a plan of action in place and find out as much as
possible about the property before you buy it. In some cases, if may not
be possible to find out much of anything about the property, so you must
make sure you are prepared for the risks that are associated with buying
a property in foreclosure including having additional money available
for repairs as well as a solid legal team in placing for evicting
occupants as necessary.