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Home > Real Estate Investment > Buying Foreclosure Home at Auction: Tips to Handle the Risks

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.


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