by Karl Adams
Auctions represent an unusual way to purchase real estate. This method offers the potential for obtaining real estate at well below market prices. An investor can often make a sizable profit from a real estate auction combined with minor and/or major renovations to the property. However, real estate auctions also come with the risk of paying too much for the property or discovering that a ‘minor renovation’ is really a Pandora’s box. So how do you ensure that you get a good deal from a real estate auction?
Thorough preparation is the single biggest thing you can control to ensure getting the best deal. Adopting the Boy Scout motto as your own helps you at every stage of the process – locating properties, conducting a property background search at sites such as propertysearch.net, scouting the property, assessing the property and purchasing the property.
Locating the property
Even in rural areas, there are several property auctions that buyers can identify by searching on-line auctioneers’ websites, local newspapers or county bulletins for tax-lien and/or Sheriff’s sales. Larger cities often have a mixture of residential and industrial properties available at auction—so it pays to know what kind of property you’re interested in purchasing.
If you’re interested in a residential property auction, make sure you look at several nearby property sales to get an idea of the neighborhood comps. This will help give you a ballpark idea of what your property might be worth
Once suitable properties have been identified, you need to conduct a property search. This normally applies to Sheriff’s sales and estate sales—you need to know whether the property has a lien associated with it or whether it comes with a clean title. Knowing this can save you both time and money.
If possible, visit the property to examine the its condition. Look for potentially major repair expense issues like a cracked foundation, a leaky roof, electrical, plumbing and/or HVAC issues. Some properties may be boarded up so you can’t assess the inside. However, there might be a designated time for an inspection prior to the auction. Make sure you attend the inspection if there is one.
Use this inspection to assess the interior condition and get at least a qualitative idea of the scope of any repairs and/or renovations necessary. This assessment, combined with the neighborhood comps (which gives you an estimate of the property’s full value), should give you a good maximum value you’re willing to pay for the property. That helps you to…
Keep your emotions in check!!
Auctions are intense and it’s easy to get carried away. They’re designed to make buyers a little irrational. Buyers can develop an emotional attachment to a property even before the bidding starts. Combine that with bidding during a fast-paced auction and it can quickly escalate into something personal with another bidder—who’s trying to take ‘your’ property. Don’t fall into that trap!! Keep your emotions in check, set a maximum value for the property and stick to it. Sure, it’s disappointing to lose an auction, but it’s far worse to lose money on an investment just because you took leave of your senses for a few moments.
Final take—Be prepared, do your homework, set a limit, stick to it and check your emotions at the door!