Understanding how to navigate the real estate auction process can open up a world of opportunities for investors in the know. After all, auctions have quickly become one of the most convenient, private and efficient means of finding deals. Where else can you expect others to bring investment properties to you on the proverbial silver platter? Whether you are a seasoned veteran or new to the game, real estate auctions are a great source of deals.
However, auctions, not unlike many of the tried and true exit strategies of the industry, have become synonymous with their own terms, lingo and methodology that surrounds foreclosure investing. Don’t let the inherent ubiquity of an auction trick you into thinking it will be easy; to really take advantage of the process you must put in a lot of work on your end. What it takes to successfully navigate the real estate auction process is unlike any other real estate investment strategy. That said, I want to encourage you to learn as much as you can about making offers at an auction. Familiarize yourself with the strategy and find out for yourself just how great they can be.
If for nothing else, people are scared of what they do not understand, and auctions are no exception. Even though they are a great way to find real estate deals, far too many people tend to avoid them for the simple fact that they are a foreign concept. Nonetheless, I encourage you to step out of your comfort zone and learn what you can about the real estate auction process; your bottom line may thank you for doing so.
5 Steps To Help You Through The Real Estate Auction Process
Not unlike every other method devoted to finding real estate deals, the more you are able to comprehend about a real estate auction, the better your chances of landing a great deal are. Do yourself a courtesy and place the odds in your favor by familiarizing yourself with the 5 steps you must complete to acquire an auction property at a price you deem appropriate.
1. Get Your Finances In Order
Bidding at a real estate auction on REO properties will require a lot of due diligence and, above all, an understanding of your current financials. Not unlike other exit strategies, the real estate auction process will require you to arrange your financing ahead of time. Take the time to line up financing if necessary, and be prepared to have it on hand at the auction.
In the event you are using private money or a traditional lending institution, be sure to iron out everything before the auction. You must know how much money you have before you make a bid, as you will be required to pay immediately. At the very least, understanding how much you are capable of spending will narrow down the pool of candidates. It’s impossible to know which houses to bid on over the course of the real estate auction process without having a budget.
While the exact procedure can vary from state to state, and even between property types, the real estate auction process is typically accompanied by one constant: a majority of auction trustees will require each individual to have their respective bidding amount in the form of either cash or a cashier’s check. In other words, you had better have the means to purchase a property close by and easily accessible. You will be expected to pay for the property on site, and should therefore come ready. To be certain, check with the auction you intend to attend beforehand and see which their preferred method of payment is.
2. Locate Auctions With The Properties You Want
While everyone has heard of a real estate auction, I am sure few have actually been to one, or even seen one for that matter; it’s not like they are advertised in the most obvious of places.
You will need to do a little research on auctions in your area. Find out where they are located and when they typically occur. I recommend signing up for emails from auction companies, looking for foreclosure auction notices in the local paper, and searching public records (in person or online). The following highlights some of the best ways to find the real estate auctions that meet your needs:
- Public Records: Foreclosure notices are public record, and can easily be seen by visiting the County Clerk’s office. In order to make your search easier, however, keep an eye out for a Notice of Sale or Notice of Default. These particular notices identify properties that are most likely going up for auction sooner rather than later.
- Online: There are several online portals dedicated to serving those intent on attending real estate auctions. Foreclosure.com, for example, lists all of the properties that have already been foreclosed on and are simply waiting to be auctioned off. It is important to note that this service isn’t free.
- Traditional Institutions: Banks and lenders are interested in removing non-performing loans (foreclosed properties) from their books, and are therefore likely to advertise the properties they plan to put up for auction. Check their website or inquire in person.
- Government Database: If the other outlets on this list come up short, consider referencing government databases. Properties expected to be foreclosed on but guaranteed by the government are often sold at auction. Try inquiring with the FHA, VA and other government programs to see which properties they might place up for auction. Consider starting your search at places with first-time homebuyer loans.
Pay close attention to the specific properties that are being placed up for auction. You want to be sure you can acquire a home that meets your criteria or specific exit strategy. Keep tabs on the real estate auctions that have properties you can work with and go from there. This way you will not waste time visiting auctions without potential. The real estate auction process is tricky enough without having to needlessly waste your time.
3. Run The Numbers
Investing in real estate does coincide with an inherent degree of risk, but that doesn’t mean you can’t place the odds in your favor. In fact, a little due diligence can go a long way in mitigating ill-advised circumstances.
Before you fall in love with a property, do what we in the business like to call “running the numbers.” Do a little research and determine for yourself whether the house you are interested in is a sound investment opportunity. Find out the estimated market value of the property and how much is owed on it, but don’t stop there. Before you even attend the auction, pay a visit to the house in question and look at it first-hand. Conduct your own inspection and confirm the descriptions provided by the trustees; this is one of the best real estate auction tips you will ever hear. As an investor, you should pay close attention to not only the house, but the neighborhood as well.
Above all, take what others tell you with a grain of salt. You, and you alone, should be the sole decision maker. Confirm everything you have been told and proceed onto the next step.
4. Complete A Title Search
Provided you are able to locate a property that meets all of your criteria and the numbers make sense from an investor’s standpoint, prepare to dig a little deeper. For starters, you will want to confirm or deny any liens that have been placed on the property. Not unlike the homes up for auction themselves, this information is public record. Finding out if a property has any liens against it is as simple as asking the appropriate authorities.
It is important to note that any property with a lien against it may require the winning bidder to satisfy any obligations before taking ownership. That said, the real estate auction process certainly has some hidden costs. With a little due diligence, however, it is entirely possible to foresee any and all scenarios; just be certain that you know what you are getting into. I highly recommend enlisting the services of a real estate attorney or title company to verify that the home is free of liens.
Of all the real estate auction tips I can impart on you, this may be the one worth remembering. The last thing you want to do is bid on a property that has liens against it you can’t afford, or that eat away at your bottom line.
5. Place A Bid
Before you commit, or place a bid in this case, make sure you know the status of the home. Things can change in an instant, and the home you thought would be up for auction may have been removed from the block for one reason or another. Once you have confirmed that the home you want is in fact up for auction, determine how much you are willing to bid on it. Again, run the numbers and find out the maximum amount you can pay. There is a point where spending too much ruins a home’s viability as a real estate investment strategy, and it is up to you to determine that number. The last thing you want to do is get stuck with a property you payed too much for. Finally, with a good grasp on the real estate auction process, prepare to make your bid.
Remember, auctions will pit you up against other likeminded investors that probably have the same intentions as you. How you carry yourself will go a long way in landing you the deal. Try to fit in as best you can, and don’t let the actions of others dictate how you bid. As long as you have done your homework beforehand, you will know how much you can spend. Don’t, I repeat do not, bid more than you predetermined. Remember, those numbers were put there for a reason.
The real estate auction process has proven very lucrative for those investors that know how to take advantage of it; there is no reason you couldn’t be on this list. Start learning the ins and outs of auctions, and use these real estate auction tips to improve your odds.