How To Buy Properties At A Foreclosure Auction

Foreclosure auctions are a potentially hot ticket in today's buyers market. The most popular auctions are the ones that lenders and banks put on after they've taken back a property at a trustee or sheriff's sale. When listing the property on the MLS does not get it sold it is included in an auction event which is organized by a professional auction house.

Contrary to trustee sales, in an auction that is put on by an auction company on behalf of the owner (i.e. the bank), the bid amount does not have to be paid in full and in cash or equivalent at the close of the foreclosure auction.

Instead, a modest amount of down payment is required in cash, and you can write a personal check for a total down payment of 5% of your winning bid. You are typically expected to close the transaction with new financing within 21 to 30 days.

That opens the door for bidders and buyers to participate in a foreclosure auction, who are qualified for a loan - and that's a lot more people than those who could pay all-cash.

Another advantage of foreclosure auctions over trustee sales is that you get a chance to inspect the property before you bid. Foreclosure auction companies usually hold open houses for several days on weekends before the sale date, and the properties are always vacant.

Here are the potential pitfalls of foreclosure auctions:

• Bidders can get lured into bidding by an artificially low opening bid price.
  
• The bank/seller may have an undisclosed reserve price that has to be reached to make the auction sale binding.
  
• The excitement of the auction might lead to a bidding frenzy which leads to overpaying.
  Some auction companies engage in "shill bidding", a practice that is widely considered unethical, where one or more bidders in the audience may bid on behalf of the seller.
  
• While bidding you might forget about the "buyers premium" that is usually added to the final bid price to arrive at the total purchase price. The buyer's premium is usually about 5% of the final bid amount.
  
  

Foreclosure auctions can be a great way to pick up investment or move-in properties at wholesale and bargain prices. Bring your contractor to inspect the property ahead of time and beware of emotional and tactical overbidding and you should be fine.

Thomas Bartke has been an active wholesale real estate investor for over 6 years. Sign up for his Nationwide wholesale distribution list at http://cawholesaledeals.com/ - You'll even get a free report just for signing up and great deals with tons of equity on a weekly basis!

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