From time to time I get questions about whether it is a good idea to buy property from a real estate auction. First we need to identify why the auction is happening to begin with.
In most cases…an auction is happening because the owner of property owes money against the property and one of the lienholders is taking action to get the money owed to them. It could be a foreclosure sale, a tax sales, a sale by an HOA, or even an auction by the owner themselves to try and sell the property.
There is one obvious reason, as a buyer, to buy at an auction…to get a property cheaper than the current market value. Getting a property significantly below market value only happens about 50% of the time.
As for the cons…there are a number of reasons why there could be a negative. The biggest reason is a buyer not doing adequate research on the property prior to bidding and getting surprised by unknown details after they own the property. In many cases it could be additional liens on the property that the buyer did not know about. Just because the property is going to auction, DOES NOT mean the lot is debt free!
Every auction, jurisdiction, and area are different…But if you are going to a tax auction…also called a tax sale…taxes may be the only lien cleared off the property. Liens from banks, HOAs, or anything else may still be attached to the property. If you goto an HOA sale…HOA fees may be the only debt cleared off. And if you are the new owner…that debt is now yours!
Another issue is personal property. If you are buying real estate and there is ANY personal property located on site. You usually do not get the personal property. And you can’t just trash the previous owners stuff. You now need to work with the previous owner to “evict” their stuff off the lot. This could include furniture, cars, campers, single wide trailers, etc. Or in rare cases…maybe the previous owners themselves.
The last big negative to buying a property at auction is the sale is not always final. Just because you goto an auction and win the bid…does not mean the property is yours. Usually, the winning bid needs to be approved by a third party…someone who is not at the auction. Don’t be surprised if you get a call a week or so after the fact telling you that your bid was not high enough and you need to pay X dollars more to get the property. Or even a call to say that as they did the final research to accept your bid, the governing body found and issue and the property could not goto auction after all.
Investors who attend several auctions do well at auctions. The “average joe” usually does not. There is usually a lot of concerns and worry both before, during, and after the auction by the bidder who may be looking for properties for their family to use or live in.
So in summary…you can get a deal at an auction. But BE PREPARED. Research the property, don’t get into bidding fever, and be ready for anything! If you can’t be 110% prepared…I do not recommend auctions. Buying a property through the mainstream market (such as through a Realtor) is much safer, there are little or no surprises, and in many cases…through negotiations…you can still get a good deal on a property you like. And if any “surprises” come up…there is usually a legal way to resolve it or you don’t need to continue with the purchase.
If your looking to buy or sell property on Chincoteague Island, Va., in the community of Trails End, or any where else in our area…please give me a call.