Foreclosure Auctions

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As the number of foreclosures has skyrocketed but home prices in many areas have failed to plummet, more buyers are considering what was once the province of get-rich-quick quackery: buying a foreclosed home at auction.
According to RealtyTrac.com, foreclosure filings are up 35 percent this year, with some areas hit even harder. John Anderson, a real estate broker at Twin Oaks Realty in Crystal, MN, says he’s seen more foreclosure sales lately, attracting

As the number of foreclosures has skyrocketed but home prices in many areas have failed to plummet, more buyers are considering what was once the province of get-rich-quick quackery: buying a foreclosed home at auction.

According to RealtyTrac.com, foreclosure filings are up 35 percent this year, with some areas hit even harder. John Anderson, a real estate broker at Twin Oaks Realty in Crystal, MN, says he’s seen more foreclosure sales lately, attracting both people who want to fix up the home for a quick profit and those who want to move in.

The foreclosure auction option can be tempting: houses can sell for ridiculously low prices, sometimes just several thousand dollars. But foreclosure sales come with risks and hassles: you may not know the financial or physical condition of the property and the old owners might still be living there. The potential for a big bargain comes with a big risk.

“Just because it’s a foreclosure doesn’t mean the price they’re asking is a good price,” cautions Anderson.

Because foreclosures are sold as-is, buyers have to do as much research as they can, depending on the rules of the auction. Ideally, they’d get a home inspection and title search. One big drawback to foreclosure auctions is that buyers have to invest lots of time and money before they even bid, something they don’t have to do in a typical home sale.

Always remember that the previous owner had trouble paying the mortgage, so it stands to reason that they didn’t have a lot of money to blow on upkeep, either. And if they had other debts, there may be a lien on the property. So, that means even if you buy your foreclosure auction property for $5,000, it could cost $150,000 to make it right.

“I’ve seen properties that bought as foreclosure, and it becomes a foreclosure again because it took so much to fix them,” says Anderson.

The current owners may be able to make good and call off the sale at the last minute. And in some states they may be able to come back even after the auction.

As many speculative investors and house flippers have left the market, there are more opportunities for little guys, but not much. Tony Moore, a real estate broker at Keller Williams’ Integrity First in Phoenix, says that there are still enough pros out there to make it hard for the inexperienced.

“There are people out there who have done their homework and have deep pockets,” Moore says. “They’ll bid the price up until it’s not a good deal.”

Still, it can be a way for homebuyers to get a scarce bargain, if they know what they are doing.

Bill Sheridan, president of the National Auctioneers Association, says that about 5 to 8 percent of home auctions these days are foreclosures. “The percent is higher this year than last years,” Sheridan says.

You can go to a traditional real estate agent and negotiate a fee to have them guide you through the process. Many foreclosures on the Multiple Listing Service, so your local Realtor will know what’s out there.

There are also many sites where you can shop directly, including the USDA Rural Development Office, which lists homes that used to have rural loans and subscription sites like RealtyTrac and Foreclosure.com. They have far more listings in all the various stages of foreclosure. Anyone can browse, but to get real details you’ll have to pay.

Anderson says that those who make foreclosure sales work expect a 15 to 20 percent profit margin. That means that even after they pay to make repairs, they save $20,000 on a $100,000 house. You can see why foreclosure auctions can be so attractive.

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