If you want to buy a foreclosure this year, don’t bother attending an auction. Huge auction websites like to talk about how easy it is to buy a foreclosure at one of their local events, but the reality is that winning a house in a bidding war and then securing a mortgage for it is a lot more complex than you might think. If you’re considering trying to buy your next real estate investment at an auction, here are a few reasons you might want to reconsider.
- Foreclosures rarely go for less than market value at auction. A major reason for buying foreclosures is that vacant homes usually sell for 15% less than market price. This isn’t the case with foreclosures sold at auction. At an auction, investors salivate over desirable foreclosures, and it’s not unusual for the ensuing bidding war to push the sticker price above the projected market value of the house.
- Someone will outbid you. Auction experts tell new buyers to avoid getting too attached to any one foreclosure that’s up for bidding. Why? Because there’s almost always someone willing to pay more than you for the house you really want. All those hours spent researching will be for naught, and unless you’ve got another home lined up, you’ll end up leaving empty-handed. This reminds us…
- You need to do a LOT of homework. When they attend an auction, most real estate investors bring a shortlist containing info on three or four properties they’d like to buy. For every house on that list, they’ve spent hours doing market comparisons and checking valuation tables. Some people think that doing a day’s worth of research is a good use of their time if it helps them get through a few hours of frantic bidding. We, on the other hand, think it’s kind of a waste.
Trawling through foreclosure listings to find a good real estate investment might be painful, but getting outbid on a house you counted on winning hurts even more. If you’re buying a house this year, keep the auctions on the back burner as a last resort. When all is said and done, you’ll be a lot happier with your purchase if you get it through a private seller.
