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Beginner's Guide to Foreclosure Auctions

by Jeanette Fisher

Buying properties at foreclosure auctions can sometimes yield great buys, but you have to approach every auction with caution, because they can be disastrous if you don't do your homework well. Here are some tips for minimizing your chances of making a big mistake when looking at a property that's about to be auctioned off.

First, at least drive by the property to see what kind of condition the exterior of the house is in. Your chances of seeing the inside of the house are slim, unless it's vacant. The homeowners are going through a very trying time in their lives, so you can't expect them to be gracious if you ask to tour the home you are thinking of buying when they're forced to vacate. Assume that the house will need at least minimal maintenance, such as paint, carpet, and some upgrades, but know that they often need considerably more than that, because the owners have often been strapped for cash long enough to have put off maintenance for quite some time. If the house is vacant, don't be shy about peeking in the windows. You're a legitimate purchase prospect, and you're just doing a diligent inspection. Just remember: the less you get to see of the interior, the more careful you'll need to be when bidding at the auction.

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Before you attend an auction, you'll need to be clear as to what you intend to do with the property if you're successful in winning it. Are you planning to live there yourself? Do you intend to fix it up and sell it retail or will you try to find another investor to buy it even before you've done any work to it? Will it become a rental property in your portfolio? Your ultimate goal for a property will be the sole factor in how much you'll be willing to bid for it. Regardless of your intention, you must exercise caution to make sure that you bid accordingly. If the price goes above what you think is a fair price, don't get caught up in the moment and bid higher. It's a mistake that can haunt you for a long time.

In most situations, you'll need to bring ten percent of the winning bid with you to the auction site. It can be cash or certified check, but most of the time you can't write a personal check for the down payment. You'll usually have thirty days to come up with the rest of the money, although some states require the entire amount to be paid on the day of the sale. Check with your local and state authorities to see what situation applies in your area.

Once you've decided to bid on a property, make sure you get to the auction site on time. Most auctions are over in an amazingly short time, often less than five minutes, so don't be late. If there are other people there, you'll find old-hands and you'll find folks who are only watching. This can be a great help to you if you're hoping to unload the property right away to another investor. Another investor may be willing to take over your interest on the spot, including a tidy profit, so don't be afraid to talk to other people at the auction.

Once the auction begins, keep your enthusiasm in check. If someone is bidding against you, bid up to the maximum amount you've determined ahead of time that you're willing to spend and then quit. If you don't, you could be making a big mistake, which could be devastating if you're a beginning investor. There'll be other auctions, and if you don't get the property this time, chalk it up to experience and begin your search for your next property.

Copyright © 2006 Jeanette J. Fisher

NOTE: Government-owned foreclosures have an entirely different bidding system. See How to Buy a HUD Repo  (This Article is posted on our investor's site.)

Copyright © 2006 Jeanette J. Fisher

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