Last month, we talked about buying a foreclosed home. One popular method of buying this type of home is through an auction. Here is what you can expect when buying a home at an auction as well as ways you can prepare.
Just like with a traditional mortgage, there are steps you need to take to prepare your finances before buying at auction. You should ensure you have extra emergency cash on hand, in addition to the funds you need for the home, in case you run into any trouble along the way. You should also make an effort to pay off as much 'bad debt', such as credit card bills before you buy a home at auction.
In some cases, buying a home at auction may make you ineligible for a traditional mortgage. This means you will either need to have the cash on hand or take on a high interest loan. These can be risky to take on if you are planning on flipping and selling the home as you will be responsible for the interest during the renovation and the time it sits on the market.
Depending on where you live, the auction process may be a little different. However, they usually happen in person and during the day, which can make it difficult for those with full-time jobs to schedule the time. Auctions may happen online or in person, depending on the property. There are two main types of auctions: open & closed. With an open auction, everyone knows what the bid is and the offer increases every time. With a closed auction, also known as a blind option, potential buyers make their bids without knowing what other people are offering.
If you have never attended a real estate auction before, it may be helpful to attend one before you are ready to buy. This will allow you an opportunity to see how things work without the stress of having to make bids. These events can be very hectic, with multiple auctions taking place at the same time, so taking some time to get your bearings can help you come up with an effective strategy