How to Buy a House at Auction: A Guide for Foreclosure Newbies

It’s a sunny afternoon, and you’re surrounded by an excited crowd. There’s a nervous energy as the unmistakable sound of an auctioneer’s chant fills the air, punctuated by a firm, “Going once, going twice, SOLD!” If you know anything about how to buy a house at auction, then you know that someone just became a homeowner.

Though it’s a less conventional path to homeownership, buying a house at auction isn’t as unusual as it may sound. Whether you’re looking for a new home for yourself, or if you’re just getting started in real estate investing, auctions are an action-packed way to (potentially!) score a great deal.

Since there are a few tricky caveats — you’ll need to manage your expectations and arrive well-prepared — we’re taking a deep dive into how to buy a house at auction with the help of real estate experts like J. Perrin Cornell, a top agent in Wenatchee, Washington, who works with 82% more single-family homes than the average agent in his area. From getting ready for auction day to what first-time auction buyers should really know, we’re covering it all.

Let the bidding begin!

What houses go up for auction?

In most cases, houses at auctions are foreclosures. This means that the homeowner stopped making payments on their mortgage, and the bank seized the property to recoup the funds.

Given the various types of mortgages that are available, the auction process may differ depending on whether the loan on the house up for auction was government-backed or a conventional loan.

There are also tax auctions, wherein the IRS has seized a home due to unpaid property taxes and is now attempting to recover losses.

Where do home auctions take place, and how do I find one?

Like auctions for just about any other item you can think of, home auctions can take place either in-person or online.

Live, in-person auctions are often held at the county courthouse, but — perhaps unsurprisingly — counties are increasingly turning to online auctions for the time-saving efficiency. While these auctions are not usually front-page news on county websites, they’re not terribly difficult to find.

“You might search the name of your city and state, along with keyword phrases like ‘public records’ and ‘foreclosure auction,’ and easily find eligible listings that way,” suggests Ben Reynolds, an investment expert based in Houston, Texas. He notes that these listings will generally indicate whether a home has been cleared for a scheduled auction and, if so, its estimated resale value.

Reynolds adds that “using a real estate agent who’s familiar with foreclosures in your local area may be valuable and more time-efficient” than simply searching online.

Meanwhile, homes that were purchased with a government-backed loan will almost certainly be sold via online auction and can be found through the U.S. Department of Housing and Urban Development (HUD) homes for sale portal.

What types of auctions are there?

If you’ve ever done any bidding on eBay or similar auction platforms, you’ve probably seen terms like “minimum bid” and “reserve.” These are applicable in the home auction world, too.

Absolute

An absolute auction is the quintessential auction type. The item in question — in our case, a house — is sold to the highest bidder, no matter what their bid price. Since there is no reserve price (more on that in a second), absolute auctions start at $0 and let the bidding process unfold from there.

Minimum bid

Unlike an absolute auction, a minimum-bid auction begins with a certain number in mind. This is usually the outstanding balance owed on the defaulted mortgage, but it may also include tax liens and other fees associated with the bank’s expenses in servicing the property.

Reserve

Reserve auctions are similar to minimum-bid auctions in that there is a fixed price that must be met to finalize the sale, but a reserve price is kept under wraps, while a minimum bid is clearly stated.

A reserve auction helps the seller potentially earn more because bidders won’t know exactly what the seller has in mind, nor what other bidders have offered.

So, how do I actually buy a house at auction?

First things first, you’ll need to have a plan to pay for the home.

If you have the cash on hand to cover your purchase — great! But if you’ll need financing, now is the time to talk with a lender. Many home auctions require full payment at the time of purchase, while others may allow a short grace period to finalize financing.

But remember, when a house is being sold at auction, it’s because someone is trying to recoup a loss. There isn’t going to be room for negotiation or special contingencies. You need to be ready to buy.

“Buying a house through an auction has its risks, and you can minimize them by understanding the auction rules before you register,” says David Clark, a Michigan-based attorney with 35 years of legal experience. “Be prepared to pay an up-to-10% non-refundable deposit based on the selling price of the property.”

Cash is king when it comes to buying a house at auction, though, so having as much on hand as possible will help your chances of winning the bid on your desired property. If there’s no way around your need for financing — and that’s totally fine! — just make sure you’re definitely good for the loan and that it fits with the terms of the auction.”

“If you’re using a mortgage to buy the property, never start bidding before you’re pre-approved,” warns Reynolds.

“Not all auctions will allow you to use a mortgage, so be diligent with your research on each property.”

Be aware that many lenders won’t finance a property you buy at auction due to the lack of an appraisal contingency to confirm the value of a home, even if the auction accepts financed bids. It might not be easy to find a loan to buy a house at auction.

How do I sign up to participate in an auction?

So you’ve found a home that’s coming up for auction and your finances are in order — now what? It’s time to register.

Depending on the auction, you may need to prove that you have adequate funds to buy a house, usually either with a bank statement or a preapproval letter from your lender. Otherwise, the registration process should be straightforward.

But this isn’t a time to skip your due diligence — be sure that you fully understand the rules of the auction and what the payment terms are if you’re the successful bidder.

Even if you’ve participated in a home auction before, don’t assume the process and rules will be the same each time. Read the fine print and ask questions if anything is unclear.

Finally, if it’s an in-person auction, don’t be late.

“When you register at the auction, it can take 30 minutes to complete the process, so arrive at least an hour early,” suggests Reynolds.

“You never want to get there a few minutes before the auction begins.”

How should I prepare for the auction?

Aside from getting finances in order, a responsible auction-goer will do some homework before committing their dollars.

Do your research

While you won’t be able to go inside a given property, you can at least drive by and perhaps walk around the exterior if the home is vacant. You can also do a little digging to find out who previously owned the home. You might even be able to find real estate sales photos from the last time the home was on the market, which can offer a valuable glimpse into the interior — just remember that there are no guarantees as to the current condition.

Homes sold at auction are sold on an as-is basis, meaning you won’t be able to negotiate for repairs or schedule inspections for a full overview of what you’re getting into. This is why buying a home at auction can be risky, but for many investors and home renovation experts, the opportunity to buy a home at a great price makes it a worthwhile gamble.

Property inspections aside, Reynolds recommends conducting a proper title review before bidding “to ensure you won’t be stuck with other financial responsibilities after the sale.” Tax, construction, or homeowner’s association liens may follow the home or even inhibit the sale entirely. And you’ll also encounter red tape if the homeowner has filed an objection to the foreclosure sale and is attempting to reclaim the house.

Estimate post-purchase expenses

When buying a foreclosure property — at auction or otherwise — the purchase price is rarely the only expense. Especially if you’re planning to use the property as a rental investment or flip it for profit, chances are high that you’ll need some cash pretty quickly to satisfy repair and renovation costs.

Though it’s hard to assign a reliable figure to expenses when you can’t inspect or even go inside a home before buying, based on the size, age, and location of the house, you can probably ballpark an amount to get things started. An experienced real estate agent can help refer you to a construction expert if you don’t already have someone in mind.

Understand the fine print

Because buying a house at auction is a fast-paced process, there won’t be much time for questions or deliberating when the house you have your eye on comes up for bidding.

“Consult with a legal expert who can check the terms and conditions of the sale contract, the professional building report, and all the due diligence documents,” recommends Clark.

In short: Carefully review all available documents pertaining to the house in question and the terms of the auction. Further, be aware that there may be auction and transaction fees above and beyond the purchase price of the home.

Get a preview of the action

One great way to prepare for an auction, especially if you’re planning to register for one that takes place in-person, is to attend a live auction as a spectator. You’ll be able to watch and learn and get a feel for how the process works before you’re the one holding up a card to do the bidding.

How do I make a bid?

Auction day has arrived, and now it’s time to get down to business!

In-person auctions are fairly straightforward when it comes to the bidding process. Simply “raise the auction bidder card if you are prepared to pay for the price being announced by the auctioneer,” Clark states. He adds that it could take at least 10 days for the release of the certificate of title, and in the meantime, you’ll have the certificate of sale.

The bidding process for online auctions may vary depending on the platform and the auction type. In some cases, such as with absolute or minimum-bid auctions, the auction will often go live, and bids can be submitted as long as the clock is still ticking.

For online reserve auctions, it’s possible that you’ll need to submit a bid, and it will then be rejected or accepted based on whether it meets or exceeds the reserve price.

Open vs. blind bidding

Open bidding is a fully transparent bidding process. Everyone can see or hear the other bids that have been made, and then make their next move accordingly.

Open bidding drives competition and can result in bidding wars when two buyers are especially eager for a particular house — or when someone is comfortable playing fast and loose with their cash.

In Cornell’s experience as a real estate agent, “there’s always going to be three or four people at the courthouse trying to outbid you. They may not know anything more about the house than you do, but there’s usually one or two sharks, and then there’s one or two folks who’ve read a book about how to make $1 million in real estate in 48 hours.”

Remember to bid within your means and to avoid the allure of a bidding frenzy.

Blind bidding, on the other hand, keeps each bid under wraps. This is similar to submitting a purchase offer on a home listed for sale — you won’t know what other hopeful buyers are offering; you can only work with your own highest and best proposal. For this reason, sellers tend to prefer blind bids because motivated buyers have to come in strong from the beginning rather than waiting to see what other potential buyers are doing.

What happens after I win?

If you’re the successful bidder on the house you’ve had your eye on, it’s now time to do the paperwork.

Pay for the home

Since you’ll already have your financing lined up and you’ll have already reviewed the sales terms of the auction, you’ll know whether you’re due to pay in full or put down 10% (or some other deposit amount) immediately following your win.

Buy title insurance

Though you’ve — hopefully — already had a title search conducted on the property, now is the time to purchase title insurance. This insurance will protect you against any undiscovered liens or objections, and you’ll want to do this as quickly as possible after your successful bid.

Clear to close

As long as the title is clear and the home is vacant, the closing process following a sale at auction should be fairly quick — especially if you’re paying cash and don’t have to wait on a mortgage loan to be finalized.

If the home is still occupied at the time of your purchase, you may have to go through the process of eviction — rules for which vary by state and county — or negotiate privately with the resident for them to leave the premises without involving the legal system.

Just remember to wait on the certificate of title before you start putting money into the property beyond its purchase — you’ll want to be sure you are the free and clear legal owner of the home.

“You should never invest any of your money in the property until you’ve claimed the certificate of title,” cautions Reynolds.

Fortunately, this certificate should come through in about 10 days, barring any unforeseen issues.

Move in or start working

When all is said and done and the home is yours, it’s up to you and your plans for the home as to whether to move in or begin renovations.

Either way — congrats! You’ve bought a house at auction!

First time buying at auction? Proceed with caution

If the variables and risks involved in buying a house at auction aren’t already clear, Cornell warns first-time buyers of a few further possible complications and expenses with foreclosure properties.

“You’re buying blind, you know? It’s not for the faint of heart.”

Be prepared for your auction home to need repairs or additional investments in:

• Turning electricity and water back on if the home has been vacant for an extended period
• Replacing taken-for-granted items like door handles, light fixtures, built-in appliances, and anything else a prior homeowner may have been able to remove
• Taming a neglected yard (landscaping isn’t cheap!)
• Damage to areas you simply can’t have access to until you already own the property (think basements, attics, and so on)

An important tip for buyers yet uninitiated to the world of foreclosures: Sometimes houses simply don’t sell at auction. In these cases, the banks will often seek a market valuation from a real estate agent and eventually put the home up for sale the old-fashioned way.

“I advise my clients that, unless they’re really knowledgeable and really know what they’re doing, let’s just pick up that house when it goes back on the market,” says Cornell. “And if it doesn’t? Well, we’ll have the next one.

“You can probably do better for yourself if you wait until [the house] comes on the market, because then you’re able to set up electricity and do the inspections.”

Ultimately, buying a house at auction comes down to your budget, risk tolerance, and level of patience. Good luck!

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