Bidding at a foreclosure auction is not as simple as it seems to be. If proper guidelines are not followed while bidding you might be in the rush to bid and end up in an uncomfortable and expensive situation. Attend several auctions without the intent to purchase before making your first bid. Let’s discuss some of the dos and don’ts of foreclosure auction.
What should be done?
> Make certain you completely understand all of the documentation during the auction. The terms and conditions must be read carefully because you cannot make claims after winning a bid. The sales document must be read and understood carefully. The purchase agreement, the home inspection, appraisals and disclosures must also be read prior to bidding. A flaw during the auction on your part should never happen because of lake of preparation. You should have perfect understanding of all the details and rules of the auction.
> Inspection of the property before the auction is of prime importance. This is when you can give your desire to buy a second thought. A licensed home inspector must be hired and should accompany you when you go to inspect the house. Walk through the property with the inspector and gather information about the condition of the roof, flooring, plumbing, electrical wiring, appliances, water supply and other fundamentals. Get detailed reports from the inspector regarding the faults in the property and the amount that will be required to repair them. Based on your plans of handling the property after winning the bid, calculate the repair cost.
> Add the repair costs to your bid amount, as in most cases it is the responsibility of the buyer to make the repairs and renovation as required. Also gather clear information about the liens and liabilities against the property, the prices of which should also be added to your bid amount. You should spend ample time on finalizing the bid amount so as to prevent future surprises.
> There are two types of auction, absolute auction and reserve auction. Buyers normally prefer absolute auctions in which there is no reserved minimum bid and the highest bid must be accepted by the lender regardless of the price. Sellers, on the other hand, prefer reserve bidding, in which they have the right to turn down the highest bid if it is less than the reserve amount or the price of the property, so they don’t end up in a loss situation. You must have a clear idea about what type of auction you will be attending.
What should not be done?
> Bring a reputable realtor, attorney, or accountant when going to any auction. Unless you have attended and purchased at many auctions you should never go alone and bid. Ask your Realtor to review the property and the detailed documents that you have collected before attending. It is good to have a discussion with the Realtor regarding these documents before making your bid.
> Excitement while bidding can have unexpected consequences. Getting over-enthused.is what leads to overbidding. Never act just out of ego to outbid your peers, which will only end up in you paying a high amount needlessly. Stay calm and relaxed while bidding and think twice before making a bid.
> Attending an auction to bid on a single property is not an effective use of your time. Do some research and select at least five properties to bid on so that you have a higher probability of purchasing one. If you are prepared just for a single property, you will have to witness many auctions, which had you prepared for you might have bid on and won.
> Clarity in your plans and ideas are vitally important before making a final decision to bid. Changing your decision on purchasing the property may result in you losing the initial deposit or down payment or both.
Proper study and planning is essential in each step of foreclosure auction. The process of foreclosure auction should not be taken casually.
Northern Great Lakes Property Management