How To Score a Bargain At a Foreclosure Auction

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You can get a real steal at a house foreclosure sale--or you can overpay for a money pit. Here's how to avoid the latter.

To complete this How-To you will need:

Knowledge of how auctions work
Low expectations
Time to research and inspect properties
Cash for a 5% deposit
Pre-approved financing
An expensive outfit
A copy of the auction rules

Step 1: Know your auctions

Know your auctions. At a sheriff's, trustee's, or courthouse auction, you can't inspect the property in advance; no information is provided on the property; you'll need to pay much or all of your bid on the spot, in cash or a cashier's check; and it will be your problem to evict the tenants! But this is where you'll find the deep discounts.

Step 2: Play it safe

If you want to play it safe, go to an auction house sale. The bank already owns these properties (so you won't have to kick anyone out), and you're usually allowed to inspect the premises beforehand. But this comfort level comes at a price—you'll typically pay 90% to 95% of the market value.

Step 3: Expect the worst

Expect the worst with any house you buy at auction. If a homeowner couldn't afford his mortgage, it's reasonable to expect he wasn't keeping up with maintenance and repairs, either.

Tip: Be aware that homeowners who are forced out of their houses sometimes express their bitterness by taking with them anything that isn't nailed down, leading to huge (and unanticipated) repair bills for the new owner.

Step 4: Do a drive-through

Drive through the neighborhood of any foreclosed home you're considering. If the area is teeming with foreclosure signs, prices are likely to fall even farther. It also may be the sign of an area on the decline.

Step 5: Check what you can

Check out as much as you can about the house in advance of the auction. If you're allowed to do an inspection, take a contractor with you; he'll be able to give you a ballpark number on the repairs you're looking at. Check if there are any liens on the home. Review the title search. Know what other homes in the area are worth.

Step 6: Have cash

Be prepared to pay on the spot a 5% deposit, in cash or a cashier's check, if you have the winning bid at an auction house sale. At a sheriff's sale, you might have to pony up the full amount.

Tip: Have realistic expectations. Banks aren't in the business of giving away homes, so if a price sounds too good to be true, it probably is.

Step 7: Come with pre-approved financing

Come with pre-approved financing, even if the auction doesn't demand it. If you make the winning bid and then find you can't get financing, you'll still be legally responsible for paying 25% of your bid!

Step 8: Look affluent

Attend the auction in your most expensive clothes. It will trick other buyers into thinking there's no point in getting into a bidding war with you.

Step 9: Set a limit

Set a limit as to what you'll bid so you don't end up overpaying for a house simply because you got caught up in the heat of the moment.

Step 10: Avoid nasty surprises

Know the rules of your auction. If you win a bid, do you have time to change your mind, or will you have to pay a penalty if you back out? Is there a "reserve amount"—an amount below which the owner does not have to sell, even if you won the bidding? Is there a "buyer premium"—an additional 5% to 10% you have to pay the auction house?

Step 11: Jump right in

Jump right in when the bidding starts—assuming you like the house. Homes sold at the beginning of an auction typically go for less money than those sold at the end.

Thanks for watching How To Score a Bargain At a Foreclosure Auction! If you enjoyed this video subscribe to the Howcast YouTube channel! http://www.youtube.com/subscription_center?add_user=howcast

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[flyboy172r]

As the 4th commenter, I must point out the previous 3 comments are pretty crap...

[johnm2]

If you get to inspect it, check the roof for signs of major leakage. Unchecked water damage can be disastrous. Also, avoid places far from public transportation. With gas prices going up there will be the least desirable as time goes on.

[siim605]

0:51 commandos BEL gunshot sounds!! :D

[nicolelivesthelight]

This video makes me wan to buy a snuggy

[WREKENT]

step 12 may you Burn in Hell for feeding the machine

[izope90]

true that =]

[kosai19]

The best tip of all is to wait another 6 months till the USA collapses. Then house prices will be 50% lower than they are now.

[platnumfire]

. . .

WHY IS THERE A VIDEO OF THIS?!

seriously though, these guys make the most usless videos ever

[Atlas2344]

it was only untill the end of the vid that i realised this will never apply to me and i just wasted 2 minutes of my life

[HUSTLE258]

i wish i had four hands...

[p0rt31]

woot. i favorited this. jk.