How To Spot A Good Deal At A Foreclosure Auction

No matter where in the US you live, there’s always a market for foreclosed properties. The first step to finding a good deal at a foreclosure auction is to do your due diligence. Foreclosure auctions shouldn’t be your first encounter with a property.

An excellent place to start looking for good deals is local real estate agents, online listings, and specialized foreclosure websites, where they usually list the properties to be sold at the next auction. Before the auction is the perfect time to hire a professional home inspector to uncover any potential issue with the property – at this point, you should have a clear idea if the property and the repairs it needs fall within your budget.

Following the pandemic, most foreclosure auctions are conducted online, making it very convenient for anyone to gain exposure to this market.

Here are the four biggest indicators that will help you pick good deals at foreclosure auctions:

The Home Inspection Didn’t Show Major Issues

A neglected exterior and worn-out paint may dissuade some investors. Still, it could be a blessing in disguise if you conducted a comprehensive home inspection and no significant issues popped out. Potential bidders may be more tight with their money or outright avoid bidding for that property. Hiring a professional home inspector is critical when shopping for a good deal.

You can consult local real estate agents to find a home inspector or browse online listings. Word of mouth is also an excellent way to find trustworthy inspectors.

Red flags that should make you steer clear of a property include issues with any of these:

• HVAC systems
• Water heater
• Electrical systems
• Plumbing systems

That is unless you’re planning – and have the resources – to invest thousands of dollars before moving in.

Location, Location, Location

The location is another excellent indicator that a foreclosed property is a good deal. An affluent neighborhood will help raise the value of a foreclosed property after being renovated – even if it’s in dire condition when you purchase it. As the popular saying goes, regarding real estate: location, location, location.

However, buying properties in wealthy or affluent neighborhoods can be difficult for smaller investors. Still, if you already have some experience in the market and capital in hand, they can make for a very profitable endeavor. There’s usually very high demand for these properties, so you must follow Multiple Listing Services (MLS) and local auctions.

Factors like accessibility, services, and proximity to noisy roads will significantly impact the future value of a property. The town’s size may also play a role – if a city has no room for expansion, properties inherently will be more valuable.

Research the area around the house before making a bid.

The Property Is Underpriced

The first step to determine if a property is underpriced is to research the local market. The local real estate market will give you a rough idea of the prices of properties. If, after factoring in the repair costs, the property is still well below the market prices, then the property is likely underpriced and a good deal.

Note that in older neighborhoods, homes may need to be updated. You may need to invest significantly to bring them up to code if you plan to sell them or increase their value.

Compare the prices of similar properties located in the same area to estimate the potential value of a foreclosed home.

Look For Motivated Sellers

Among the best ways to find good deals at auctions is to look for desperate or motivated sellers. Banks and other financial institutions incur maintenance costs of properties just by holding them – some of these costs include property taxes, HOA fees, and service costs.

If you look at the records and the property’s been on the market for a long time, the bank will likely want to sell it off as quickly as possible – even at a considerable discount. Note that this doesn’t just apply to foreclosures – some real estate agents look specifically for recent divorces or death announcements to find motivated sellers.

You can usually get a good idea of how desperate a seller is by asking questions like the reason for selling or if they’ve secured a home elsewhere. Some sellers can be emotionally invested in a home, so reassuring them that you’ll take good care of it can go a long way.

Always keep an eye out for motivated sellers.

Mistakes To Avoid During Foreclosure Auctions

1. Don’t Bid On A Property You Haven’t Researched

Bidding based solely on the selling price is one of the most common mistakes beginners make in auctions. Even if the price sounds too good and whether you’re in a live or online auction – don’t bid on a property if you haven’t researched it and have no idea of the repairs it needs.

Some expensive properties being foreclosed can be a good deal – but if they require extensive repairs, they may just be out of your budget. The worst scenario is to purchase a property and be stuck with it, unable to repair it, as even vacant properties incur costs like HOA fees and taxes.

Avoid bidding on properties you haven’t researched, no matter how good the deal sounds.

2. Don’t Start With Your Largest Possible Bid

It is very common for foreclosed homes to sell well below the listed price. If you start with your largest possible bid – based on your budget –you could end up overpaying. Gauge the interest of other potential bidders and bid accordingly. If you seem confident, other bidders may interpret it as you having a higher budget or ceiling and may move on to a different option.

Research the auction house, find out the minimum bid increments, and never start with your largest bid.

3. Don’t Get Involved In Bidding Wars

Bidding wars occur when two or more bidders are heavily invested in acquiring a property and keep bidding higher to secure it. Don’t let your ego win and get sucked into this trap – if you see a lot of demand for a property and you see you’re approaching your maximum bid, it’s okay to let it go. More opportunities will come.

If you’re on an online auction, we recommend taking at least 15 minutes between bids – that way, you and all other bidders have time to cool down and avoid a bidding war.

FAQs

How Long Do Foreclosures Take In My State?

In most states, the foreclosure process can only begin when the homeowner is at least 120 days delinquent on their scheduled mortgage payment. After that, this process can drag on in judicial states for months – or even years –as each step requires court approval.

This process is considerably quicker in non-judicial states as they’re settled out of court. These usually take between 2-3 months.

Where Can I Get A List Of Foreclosures In My Area

All foreclosures begin by filing a formal letter or document at the county courthouse. Foreclose auctions are then publicly advertised and accessible to any buyers. You can find foreclosure auctions in your state by checking:

• Local newspapers
• Online listing services
• Real estate agents
• Specialized foreclosure websites

Can You Finance A Foreclosed Home?

Yes – even though financing a foreclosed home can be more challenging than regular homes, it’s still possible. Some of the best options to finance a foreclosure are hard money loans, mortgages, and home equity loans.