Exercise Due Diligence When Buying A Home At Auction

Exercise Due Diligence When Buying A Home At Auction


Earlier this month SayEducate explored the growing trend where buyers are choosing foreclosed homes as one way to enter the housing market or to get a second home for investment purposes. In, Foreclosures: Wise Investment or Money Pit? we examined the pitfalls and positives related to this type of financial decision making, taking care to emphasize the risks involved.

Since we posted the article, we’ve uncovered a handful of auctions being held around the country to dispose of foreclosed property. This weekend, one auction house hopes to see 200 homes sell and is hosting back to back auctions in Dallas and Houston to give buyers an opportunity to buy discounted houses.

It isn’t our policy to endorse or give out details about specific home auctions, but our gut reaction to them is for you to perform due diligence before placing a bid. Specifically, by visiting the property in person and doing a thorough inspection, these steps will reveal whether the house is worth buying or not.

Of the few home auction websites we’ve visited, there seems to be plenty of information available to you including:

The licensure information — Real estate agents and brokers must be licensed and auctioneers must have a state license too. People associated with the selling of a home via auction should be willing to disclose their credentials. If not, then don’t place a bid.

Open houses — Every property being sold should be visited, therefore find out when open houses are held. Some homes are available by appointment only; if you cannot gain access, then don’t place a bid.

Financing — Some companies have a financing department available or affiliated lenders who will pre-approve your mortgage. Unless you’re paying cash for the property, you’ll be expected to put about 5% down and be able to come up with the rest of the money by closing, which is usually 30-45 days out. Please note that many auction companies will tack on a fee, usually 5%, on top of your final price as a buyer’s premium.

Of course, you’ll want to understand what other fees are your responsibility (e.g., title costs, attorney charges, liens, taxes, etc.)  before proceeding and what other paperwork you must handle. If you find a home you like and you have a bid you’re ready to offer, then attend the auction for your chance to buy a foreclosed home.

The present housing market has driven down prices while driving up foreclosures, making 2008 an excellent time to buy. Perform due diligence and you could come away with a bargain.


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Categories: Home Buying

About Author

Matthew C. Keegan

Matt Keegan is a freelance writer and editor as well as publisher of "Matt's Musings", his personal blog. Matt covers campus, consumer, business and financial topics on various websites and blogs, and has been published in the "Houston Chronicle", "Sam's Club Magazine" and "Wisconsin Golfer".