During her 15-year career as a real estate investor, Julia Spencer has learned plenty of house auction tips and tricks to steer clear of lemon buys. Now she teaches other investors how to make the most of their money at home auctions in their respective hometowns.
“There are a lot of things that a new homebuyer needs to look out for when buying a home at auction,” she said. “But it’s the school of hard knocks, you just learn to do it or else you’ll never do it.”
Whether you’re a first-time homebuyer looking to save cash on your potential dream home, or a novice real estate investor looking for insider tips, keep reading for some expert house auction advice.
Do Your Research Before Bidding at a Home Auction
Potential buyers face a lot of unknowns participating in a home auction, as they typically do not get to enter the property before the sale. That’s why it is so important to find out any and all details before an auction.
“The real work is before the auction,” Spencer said. “You must spend time learning how to read property records and liens.”
A buyer should spend time researching documents that are available online, which can include tax assessments and geographic information system maps that show property lines, she said.
Check with your city or county offices to see what documents are available in the neighborhood where you plan to buy a home.
“Learn the rules of the state where you’re investing,” said Spencer, who helps new investors learn some tricks of the trade on her YouTube channel.
In addition to finding out about the property itself, you always want to research the neighborhood and find out what nearby homes are worth, said Justin Pierce, a realtor and investor with Snow Goose Homes.
“Check to see what similar homes in the area have sold for, the ones in top condition,” he said. “Figure out those and calculate backwards from there on what remodeling costs will be for the auctioned home (to determine a high bid).”
Factors like school district, crime and neighbors will also help determine if you want to live there after the remodel, or how easy the home will be to resell later, he said.
House Auction Tips and Tricks: Stick to Your Budget
After spending hours on research and time attending the auction, it’s easy for people to get emotionally invested in an auctioned property. But it’s important not to go over your calculated budget.
“People invest their time, and they really want the property,” said Pierce. “It can be easy to get addicted to the bidding, but you have to show up and know what the home is worth and not keeping raising your hand when it’s past that value.”
“I’m a pro and I’m still vulnerable to overbidding,” he added. “Control your emotions, and know what you’re willing to pay.”
Don’t forget to estimate how much money you’ll need to spend after the auction, because that number will help you determine if the auctioned price is low enough.
“Only bid about two-thirds of your budget, and leave the other third for taxes, liens and fees,” said Spencer. “You need a cash reserve so you’re not stretching yourself too thin.”
Understand the Risk of Home Auctions
While auctioned houses may have a cheap price tag, buyers may need a lot of money after a purchase to make them livable. And it’s typically unclear how much work will be needed until it’s too late.
“Most people underestimate the cost, effort and risk,” said Pierce. “You have to be really careful, because you’re giving away a lot of security – like contingencies and inspections.”
Spencer remembers buying a commercial property that looked great from the outside, but once she got inside it was a totally different story.
“I thought it was a decent building, and I could make it into a coffeehouse or at least sell it for profit,” she said. “But when we went inside, there was nothing. No second floor, no roof. It was just a shell.”
“It ended up being an expensive lesson, and it’s a lesson that happens to people who just jump into (auctions) without paying attention,” she added.
Beyond researching everything you can about a property before a purchase, and checking out what you can see from the outside, there’s no way around the risk. But if the price is low enough, it may just be worth it.