Property auctions are one of the best ways to land a good real estate deal. In fact, buying property at an auction enables you to acquire an asset for below market value. Real estate investors who have mastered this process are able to generate a tremendous return on investment on a regular basis. Having said that, you should know that buying a house at auction does come with a learning curve. There are several pitfalls that beginner real estate investors have to avoid if they want to successfully acquire an auction property. In this article, we will give you an overview of real estate auctions and outline the mistakes you should avoid at a property auction.
The Real Estate Auction Process
A property auction significantly differs from a regular real estate deal. Unlike a traditional transaction, auctions offer the public the chance to buy undervalued investment properties through competitive bidding. Before bidding on a house, auction participants have to make a 5%-10% deposit. The full amount is paid after the investor wins the bidding war.
Here are some of the benefits of making a real estate investment through a property auction:
- Buying an auction house is a very fast process since all the terms are predefined
- Auctions can take place either online or in-person
- Auctions are the best way to land undervalued investment properties
Going through a property auction isn’t without cons though. For example, most auctions require cash financing. Moreover, a lot of auction properties have several title issues that could be a cause for concern. With that being said, this should not deter you from trying your luck in a property auction. As long as you avoid the mistakes outlined below, you should be able to navigate the process smoothly.
The 6 Property Auction Mistakes You Must Avoid
There are several common mistakes that beginner real estate investors tend to make. Most of these mistakes stem from a lack of basic understanding of how to buy property at auction.
1- Neglecting to check the details of the sale
Checking the particulars of a deal is paramount in any type of real estate investment. This is especially critical when dealing with a property auction. While the terms of the deal are predetermined by the seller and the foreclosure auction house, the responsibility of verifying the details of the sale falls on the buyer. Neglecting this step might cause you to buy an investment property that does not fit your requirements.
2- Failing to set investment parameters
Before entering a property auction, you need to have a firm grasp of what you want to achieve. Not setting investment parameters and objectives is one of the costliest mistakes you could make. Having a clear idea about the type of property that you want to acquire as well as your specific investment strategy will allow you to allocate the appropriate financing. Additionally, you should consider setting a maximum budget and a timeline before bidding on a property for auction.
3- Not doing a title search
Like we mentioned earlier, property for sale by auction can have several title issues. In other words, there are legal problems in the property’s chain of ownership. Needless to say, this is not a convenient situation for the buyer. Acquiring an income property with legal issues will halt its ability to generate positive cash flow for the real estate investor. This is why it’s important to hire a title search company that can uncover and fix these issues.
4- Being too hesitant
Winning a bidding war at a seized property auction requires a fair bit of confidence. Consequently, showing any sign of hesitance can cost you the sale. Novice investors often focus on their competitors instead of sticking to their real estate investment strategy and maximum budget. This often leads them to feel overwhelmed, which prompts them to quit before reaching their limit. The key to winning at real estate auctions is to remain assertive throughout the process.
5- Getting carried away
The opposite of hesitance is not desirable either. Real estate investors who don’t keep their emotions in check can get caught in the momentum of the auction room. This will invariably end up in a bid that is higher than the initial maximum budget. Not letting the selling agent sway you and maintaining an emotional detachment from the investment property is the way to go.
6- Not retaining the services of a real estate industry professional
Taking on a property auction without prior experience is not a good idea. Several things can go wrong and not having access to professional guidance can prove disastrous. There are several professionals that can help beginners navigate the process in a smooth manner. Such professionals include sales agents, brokers, bankruptcy lawyers, and real estate agents. Furthermore, these experts are privy to the latest real estate auctions and can even alert you when a good investment opportunity comes up.
A Few Extra Tips on How to Win a Property Auction
Avoiding the mistakes discussed above and applying the following tips should increase your chances of winning a foreclosed property auction.
- Make sure to dress in a business manner. The more professional you look, the less likely your competitors will consider outbidding you.
- Showing up early is very important since it allows you to get a seated position at the front. This is an effective show of intent that lets others know you’re serious about winning the bidding war.
- Don’t let the auction seller or other participants know how much you are willing to spend. This will give you a psychological edge when bidding for a property.
The Bottom Line
A property auction is without a doubt an option worth considering. Real estate investors who take the time to understand every aspect of the process stand to benefit tremendously. Make sure to abide by the best practices in this article and consult with a real estate agent to set a winning strategy. You can also use Mashvisor’s investment tools and calculator to find and analyze auctioned homes! Start your search now.