Property auctions are an attractive way for new and seasoned real estate investors to score deals on homes. They can also be tedious, frustrating, and make you go way over your budget in a matter of moments. I have been to dozens of auctions and have only won three properties, so believe me when I say it takes a particular type of person who can thrive at auctions. If you think that person is you, let’s talk about what to expect and how much foreclosed homes will sell for at an auction.
The truth is, it’s impossible to say what an average price could be on a property auction. In the end, the property is sold to the highest bidder. The problem is, there’s no way to know what that highest bid will be. It’s dependent on several factors, including property condition, starting price, the number of bidders, whether or not it’s a holiday weekend, the weather, and so much more.
Not all hope is lost, though. The auctioneer will offer a starting price, so you’ll be able to see if it’s in your budget to offer bids or not. But let’s talk about what goes into a property auction, why you might get outbid, and my tips for becoming a successful investor at property auctions.
How Much Do Foreclosed Homes Sell For at Auction?
The concept of a property auction is simple. The bank gets a bunch of people with money to drive the final price as high as possible. Alternatively, the bank can hope that it won’t be competitive and that they’ll be able to swoop in and claim the property for a song.
See, the bank doesn’t actually own the property being sold at auction. Property auctions occur during the foreclosure process where the bank tries to recoup their expenses on a home whose owner has gotten behind on the mortgage.
There are a few different types of auctions, and they each have their own fee structure and requirements. The most popular ones you’ll see are:
Public Auctions – The bank puts the property up for bidding in a public space. There are no additional fees associated; what you bid is what you pay. There are strict requirements and deadlines for the winning bidder at a public auction, but overall these are relatively straightforward.
Private Auctions – These are run by a bank or representative of the bank who bundles up several properties to be sold but auctions each one individually. Private auctions will include more fees that are decided upon by the auction house. All fees must be disclosed ahead of time, though, so be sure to ask for a breakdown before bidding.
Auctions can run either in-person or online. Most are live, but there are occasional auction houses that allow for extended bidding, though this is more for estate liquidation than entire properties.
Also, while not strictly auction houses, sometimes wholesalers will offer up a property to be acquired by the highest bidder. This varies based on the wholesaler’s business structure, so ask around if you’re interested in finding properties this way.
Some Tips for How to Be Successful at a Property Auction
Notice I didn’t say “how to win” but instead “how to be successful,” as I can’t give you any tip for winning an auction besides: be the highest bidder.
Instead, let me talk about how to make sure you become a practical (and therefore, successful) real estate investor who goes to auctions.
- Decide on your max bid and stick to it – This requires a lot of discipline as you’ll have to remove any emotion or competitiveness you’re feeling. Sticking to a hard budget will save you not only money but a lot of headaches.
- Do your research on the property ahead of time – Most of the time, you won’t be allowed to view the home’s interior as the bank doesn’t fully own the property. That doesn’t mean, though, that you shouldn’t do your own due diligence ahead of time. See if you can pull a title report, check the county or town for unapproved construction work, do a walk around the outside of the home. The more information you have, the better you’ll be able to know what it takes to make the property profitable.
- Keep making offers – If you’re in a competitive market, don’t let your first few unsuccessful auctions deter you. Keep learning, stay diligent, and you’ll end up a winning bidder in no time.
- Go after off-market properties – One trick I like to do is find properties or auctions that haven’t yet hit the MLS. Finding these hidden gems helps to level the playing field by removing your competitors from creating a bidding frenzy that you cannot win.
Why Do I Keep Getting Outbid at Auctions?
New investors can get frustrated quickly when dealing with foreclosure auctions, as they will see their max bid get crushed in seconds. How are all of these people outbidding you?
It can get incredibly frustrating when you’re outbid, especially on a property you wanted, but in the end, you don’t know the motivation the other bidders have. Often you’ll be outbid by people who are looking to purchase the home for themselves or a family member to live in. Auctions are popular for these potential homebuyers looking to get a good deal on their new home. As they do not see this as an investment that must turn a profit, they have more cash they’re willing to bid with.
A Few Ideas for Increasing Your Bid Budget
There are a few ways you can increase your budget to help get you closer to the winning bid.
The first one is to consider using the property as a rental instead of a fix & flip. By holding onto the property and renting it off, you’ll be able to increase your long-term profits, which may help you pad your bidding budget.
Another way some bidders increase their max bid involves cash, and it’s not one I recommend, but run your business the best way you see fit. If you’re paying cash and looking to increase your bid range, consider calculating the total price you’d pay if you took out a loan. Once you figure that total amount, use that price as your max bid instead of the original bid amount.
This is one solution if you have your eyes set on a property, but I don’t think it makes sense because you’re risking more money without getting anything extra back. But again, if you have your heart set on a property (which means you’re not following Success Tip #1), then this is a way you might be able to bid a higher amount.
While there is no hard-set rule for what a foreclosed property might go for at auction, I still hope that you were able to glean some good tips from this article. Remember that property auctions are a numbers game, and the more times you give it a try, the more likely you are to end up as the winning bidder. Let us know in the comments if you have any tips for successfully winning property auctions.