Buying At Foreclosure Auction

home auction

What I Like and Dislike About Foreclosure Auctions

For purposes of this article the term Foreclosure is defined as a property sold at auction due to the owner’s default of payment. I mention this because the term is often used to describe Short Sale and Bank Owned property, but the auction sale of a foreclosed property is different from anything else.

Buying a foreclosed home at auction does offer potential profit – lower purchase price, some quick fixes, and then a sale yielding a nice return on the time and money spent. Experienced investors are always on the prowl for this kind deal and are willing to take on the inherent risk because five or six good deals will easily cover the losses on two or three deals that just don’t make it.

The small investor needs to be more careful about playing these odds however; it really is a matter of rolling the dice. How so? Buyers should consider these factors before placing a bet (bid):

  1. Foreclosure Auction property really is sold AS IS. The buyer can pay for an inspection before placing a bid, but if not the highest bidder that money is gone. At $400 an inspection, how many times does a buyer want to try that?
  2. Utilities are almost always off, and it is up to the potential buyer to make any payment necessary to turn them on if they want to test how things are working. Again – an expense for something that may never be owned.
  3. Since the seller (trustee) has never lived in the property there is no requirement to disclose anything. Has the roof ever leaked? Does the plumbing work? Does water ever accumulate in the basement or crawl space? Has there been unpermitted work done to electrical or any other remodel/upgrade? Is there an insect or rodent infestation? Mold? The buyer can possibly get an idea about some of this, but…
  4. In addition to the above, consider this: According to Joseph Mazzuca, CEO at Meth Lab Cleanup, there is a huge population of homes, likely numbering in the millions that are contaminated with chemicals used in meth production. These chemicals are not always detected and may cause serious neurological and respiratory problems for residents over time. Most of these contaminated homes end up in foreclosure.
  5. Whatever the issue, chemical contamination or buried oil tanks that were never decommissioned, once the buyer owns the property they are under legal obligation to remedy the problem. An otherwise good deal could end up costing financial ruin.
  6. Keep in mind that people being forced out of their home will sometimes do nasty things to the property. Cement in the sewer pipes, messed up wiring that may cause fire or electrocution, dead animals strategically placed in walls and floors, and so on. Even inspections will miss some of this.
  7. Squatters and adverse possessions are also potential issues to deal with, and are not pleasant to say the least.

Needless to say that a buyer should exercise extreme due diligence with foreclosure auctions. The problem is that auctions only subject the buyer to due diligence – the seller has no such obligation so it is ALL up to the buyer. The question is, “Are you feeling lucky today?”

For the average buyer or small investor there is no better scenario than buying a home in a stable neighborhood, at a fair price, and from sellers who have lived in the home over some years. It’s important to get proper disclosure and an accurate history of the property. It’s always good to remove “luck” out of the equation.

Want to discuss this further? There are a few secrets that I could share with you if you’re not the average buyer, which will reduce buyer risk. Call or email and we can talk.

Ken Reetz
Principal Broker
Reetz Pro Realty Group
Office: 503-292-7070
Cell/Text: 503-330-4148