When you are looking for properties you do not have to be limited to the traditional seller listings you find on the MLS (multiple listing service). Auction sites have become a way to purchase distressed properties over the past several years. They may be available at a discount for a variety of reasons.
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You may face less competition to buy a property compared with buying the traditional way, but you’ll also be dealing with a different pool of potential buyers—often, experienced investors. Perhaps the biggest risk of buying at auction is that you’ll have limited knowledge of the properties for sale, making an expensive misstep a very real possibility. And, as with any real estate purchase, you’ll need to read, understand, and sign lots of paperwork.
While you can find a good deal auctions are generally a riskier way to acquire a property than buying through the usual process. Due to that increased level of risk it is vitally important to be well-educated about how real estate auctions work and prudent about the properties you consider bidding on. Here are three areas that you need to pay special attention to:
1. The property may still be occupied
If there are residents in the property then you may be assuming the responsibility for removing the occupants. If that is the case then you will need to make sure you understand the process and the additional costs associated with relocating the residents. This is a significant risk not only because it limits your access to the property before you purchase but it adds time and money to your timeline depending upon the tenants level of co-operation.
2. The property may not be accessible prior to purchase
There are circumstances that may contribute to the low pricing of the propery. A common one is that the property is not available for viewing. Even for an experienced investor it may be challenging to estimate repairs but if you do not have any idea of what the property looks like inside it may be impossible. For this one reason alone, I have passed on properties because the risk is simply more than I am willing to take.
3. There may be additional fees
Part of the benefit for purchasing auction properties may be lower competition but that there is a cost assicatiate with that benefit. The auction companies include a “buyers premium” which is a fee added onto the purchase price. It may be a flat fee or it may be a percentage of the sale.
Auction homes may be another option to pick up that flip property. However, making sure that you understand the pros and cons will better prepare you as you decide whether or not a bid is in order.
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Amber
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