We believe that buying a residential Real Estate property should always be considered an investment. As with any investment, there are certain risks and rewards that come from purchasing specific types of properties. In any Real Estate market purchasing a house at auction can come with a potentially large reward. However, before you consider buying a home at auction, it is important that you understand the intricate balance of risks and rewards.
Why are some houses sold at auction?
The first step towards knowing if you should purchase a house at auction stems from an understanding of why the home is currently listed on the auction block. There are two typical types of Real Estate home auction.
- Foreclosure auctions: This type of auction occurs when a home owner doesn't pay his mortgage on a repeated basis. At such a time the bank files a notice of default with the county recorder. If the homeowner still doesn't pay the amount of money that is owed on his mortgage, then the house will be put up for auction.
- Tax lien auctions: This type of auction occurs when a home owner fails to pay property taxes and/or state or local income taxes. In these instances the unpaid tax authority will seize ownership of the property.
What are the benefits of buying a house at auction?
The second step in knowing if you should purchase a house at auction involves understanding the benefits of this type of Real Estate purchase. One of the premier benefits of an auction is that it provides potential Real Estate investors with a chance to grab a fantastic property for a fraction of the cost. Sometimes a house for auction will be in a state of disarray; while this could be a draw back, it also provides the potential for a fixer-upper. These types of homes have the potential to be a great investment for someone who is looking to buy a home, then quickly sell it at a profit.
What are the risks to buying a house at auction?
The final step towards determining if you should buy a home at auction lies in an understanding of the inherent risks. It is important to note that each property will come with its own unique set of risks, as well as potential benefits. In these instances, education will be the key to success. Some of the most common risks include: having to pay a large sum of cash up-front, winning the auction but not being sold the home, and potential maintenance problems. Certain auctions don't allow bidders to fully examine the home; this means that you could be purchasing a home with maintenance problems that aren't readily visible.
By following the above steps and working with a trusted Real Estate professional you will be able to determine if you should by a house at auction. No matter what you decide to do, remember that every Real Estate property should be considered an investment and treated with care.