What is a Real Estate Auction?

A real estate auction is a public sale of a property, either by a homeowner, homebuilder, the government or a bank. Homeowners may choose to auction off their property via an auction in order to sell it as fast as possible. Homebuilders may choose to auction a group of homes to sell them all at once, especially if they have sat on the market for a while without much interest from buyers. If someone fails to pay their taxes and owes the government a lot of money, or if they have violated some other type of federal law, the government can seize their property and then auction it off. The most common type of auction is of bank-owned properties, where the bank auctions a home instead of selling it as a foreclosure.

There are three common types of real estate auctions:

• Minimum bid: There is a minimum price that the auctioneer will accept, and it is generally published in the auction listing materials.
• Absolute auction: The property will be sold to the bidder who offers the most, and there is no minimum.
• Reserve auction: The seller has the right to review the bids and accept or reject the highest offer within a set period of time.

How to Buy a Home at Auction

If you’re purchasing a home, buying your new home at an auction is a different approach than the standard method of touring homes, making offers, and negotiating with sellers.

To buy a home at an auction, you should review auction listings to learn about the homes that are scheduled for auction as well as dates and locations. Your county recorder’s office or website is usually the place to find this information, or you can also check resources like the U.S. Treasury’s Real Property Auctions.

At most auctions, the winning bidder is required to provide a cashier’s check for the minimum amount the auction holder requires. You must pay auction fees and bidding fees as well as put down a deposit (called earnest money) before you leave the auction site. That means you’ll need enough liquid assets to cover these costs in order to purchase a home at auction.

Some auctions do allow financing, though most do not. If you’re interested in a property that’s being sold at auction, find out if the auction permits financing and get pre-qualified ahead of time. In some cases, open houses are held, allowing you to tour the property before the auction date to determine how much you’re willing to spend, what renovations will be necessary, calculate your bottom line, and estimate your total investment.

What to bring to a house auction:

• Cashier’s check: To pay auction fees, bidding fees, and an earnest money deposit
• Loan documentation: If financing is permitted in the auction, bring your proof of financing

Should You Buy a House at Auction?

Auctions may seem like a great way to purchase a home at a rock-bottom price, but novice investors should exercise caution.

Most homes sold at auction were previously owned by borrowers who had serious financial troubles. For this reason, many auctioned homes are outdated and possibly in need of major repairs, and sometimes it’s not possible to get the home inspected before you place a bid. In addition, they may have tax liens against them, second mortgages, or contractor liens, which can complicate the sale.

While it is possible to get a great deal on a home at an auction, it’s also possible to over-pay. Sometimes auctioneers will set a low minimum price to get people in the door and dreaming of owning the home. Once the auction starts, bids can escalate quickly and people’s emotions can get in the way, resulting in a winning bid that’s more than the home is worth. If you participate in an auction, make sure that you know the maximum amount you’ll bid, and walk away when the bids rise higher than that amount.

Tip: Before buying a home at auction, view homes for sale in your price range to get an idea of how much homes are selling for and determine a ballpark price range for the auction.