How To Buy A House At An Auction For As Little As $1,000
The prospect of home ownership is a distant fantasy for most young people. But if you're willing to forego the traditional home buying process of crowded open houses and overbearing realtors for the open auction market, there are some serious deals to be had. In fact (if you're particularly lucky), in some parts of America you can score a great piece of residential real estate for as little as $1,000. Don't believe me? Here's how it's done.
1. Scour local listings
To get a feel for what's available, you'll want to call local realty offices to see if they have listings for any homes up for auction. You'll also want to check the local classifieds (under both "real estate" and "auctions") and check Zillow's foreclosure listings, as well as contact auctioneers directly. You should also pay attention while driving around for obviously abandoned homes that pique your interest—watch out for signs out front with more info, as they may very well be going under the hammer soon.
2. Hire a lawyer
Once you're serious about going down the auction road, you'll want to hire a real estate lawyer to advise you on the process and help you avoid any pitfalls. Going in blind can be risky, especially if the property for sale is in foreclosure. There could be unpaid tax bills or other outstanding debts that you'd be on the hook for should your bid win out. This handy referral directory will help you locate a rockstar real estate attorney tout de suite.
3. Do a thorough title search
Once you've found the house(s) you want to bid on, do a full title search (or have your lawyer do one) to turn up any outstanding debts, unpaid taxes, or other liens. Most auction houses will provide a title assessment indicating whether it's free of all debt, or what you might be on the hook for as a winning bidder.
4. Do a dry run
Before you make any big moves, you'll want to attend a couple local real estate auctions to get a feel for the action. Keep an eye on how the auctioneer runs things, how he calls for bids, and how potential buyers indicate their continued bidding. Also read up on the terms and conditions of the particular event, and whether winning bidders are being charged any money in addition to their winning bid price.
5. Know when to tap out
Once you've set your sights on a particular property, you'll want to calculate how much you'll be willing to shell out for it. Once you have a plan for the investment (live in it, flip it, rent it, etc.) you'll want to find out what similar nearby properties have sold for recently, determine what it might sell for, and calculate necessary improvements based on worst-case scenarios since you will be unable to have it properly inspected beforehand. Do the math and figure out your maximum bid price.
6. Arrive pre-approved for a mortgage
If you're planning to bid, you better be prepared to pay. Depending on the state, an auction may require a cashier's check for at least $5,000 made out to the auction house to prove you're serious. Additionally, if the auction allows for financing you'll want to show up pre-qualified for a home loan so you know exactly what your buying power is.
7. Be prepared for some costly repairs
You may be inheriting the space from tenants who couldn't afford even the most basic repairs (or are so angry for being booted that they trashed the place before leaving). Be prepared to shell out a significant sum just to make it livable. Specifically, in the case of Detroit's incredible $1,000 auctions, winning bidders are responsible for bringing the home up to code within six months of purchase or risk forfeiting the property back to the city. If you can, peek through the windows to check for any necessary surface-level repairs.
8. Be on time
Most auctions don’t last very long, so being 15 minutes late could mean missing the whole thing entirely. Plus, experts claim that the first few properties in an auction sell for less because the bidding crowd may take a bit to adjust to the protocol and pricing patterns. Early birds get the deal.
Joe McGauley is a senior editor at Supercompressor whose current path to home ownership involves winning the lottery.
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