Heard a lot of buzz about buying foreclosures for a steal? Or maybe you saw an ad for your dream home about to be auctioned? There’s an art to buying real estate at auction, and it’s one that must be practiced if it’s to be perfected.
Which is actually the first lesson of auctions: observe a few before bidding. On the most basic level, you’ll need to understand the procedures: showing proof of deposit, listening to and understanding the legal description, etc. But beyond that, there’s a rhythm to auctions, that you must simply develop a feel for, as un-scientific as that sounds.
The second rule of auctions is to be prepared. Know what it is you’re looking at; if you went to an antique auction, you would want to know the background of what’s being offered for sale. Likewise, do some research on the property, and the neighborhood. When was it built? How many square feet? How many bedrooms and bathrooms? Has it been renovated recently? What kind of work does it need? What are comparable houses selling for? And the list goes on, but the bottom line is: what is the house worth right now?
Once you have an idea of what it’s worth, you can come up with a figure of what you’re willing to pay for it. Which brings us to our third rule of real estate auctions: always know beforehand what you’re willing to bid, and stick to it. That latter is especially important, as it prevents you from making emotional, irrational decisions.
So you’ve been to a few dozen auctions, and you finally won a bargain. What next? You’ll need financing, and quickly. Hopefully you already have a relationship established with a lender, but if not, move quickly and talk to several. Some buyers like hard money lenders, because they’re fast and relatively easy to close with, but of course they charge accordingly. Other buyers prefer local banks, because you can still form a relationship and potentially move quickly, while avoiding hard money terms. Either way, the trick is speed.
Finally, it’s worth noting that in any given market, there are relatively few buyers who frequent auctions. 
You’ll see the same faces again and again, which means you better play nice with the other kids in the sandbox. Have a sandwich with them, buy them a drink, get to know them. Find out who they borrow from, who their realtors are, where they’re investing. They are part of your business, whether you like it or not, so you might as well learn from them, and where possible cooperate. It will make you a better investor, and a better businessperson generally.
Brian Gregory is a landlord and real estate investor out of Baltimore, MD. For more helpful real estate tips and articles, see the following archive of landlord & real estate investing articles.
[...] at foreclosure auction is something of an art, so I would refer to a prior blog entry on How to Buy Real Estate at Foreclosure Auction. The bottom line, however, is that you can pick up real estate at foreclosure auction relatively [...]