Buying Real Estate at Auction
Posted by mcarey on August 22, 2008 under Uncategorized | 
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Distressed real estate sales in general and foreclosure auctions in particular are getting a lot of press right now – Foreclosures are up, delinquencies are up, distress is up. Frankly, I’m bombarded at parties and events with questions about how busy we are and how I must see some incredible deals. The short answer is yes; we are busy and yes; I do see some real estate sell for less than retail value. That said, there is some inherent risk in purchasing real estate at foreclosure auction. Buying foreclosure properties is not for everyone. Any real estate transaction takes a certain level of knowledge and skill and purchasing properties on an “as-is where-is” basis takes additional ability. We always encourage all prospective buyers to seek out the counsel of capable real estate professionals, whether that be real estate brokers, attorneys, surveyors, engineers or whomever they need in order to feel comfortable with their purchase. If you have an inclination to participate in an auction, at a minimum, I suggest gaining experience in these areas:
- Title Research – Most title companies will provide title search services and a commitment of title insurance for a small fee. This title commitment will allow you to factor in any outstanding liens and encumbrances that will need to be paid over and above the foreclosing mortgage, including, but not limited to; Municipal Liens and Taxes, Mechanics Liens, Superior Mortgages.
- Market Research – we recommend specializing an a particular market area: Multi-units on Portland Peninsula, SFH’s in Gorham, Waterfront Property in the Midcoast Area, Commercial Property in Bangor. Work to understand that market better than anyone. The best way to do this is team with an experienced real estate broker. Even if you can’t include a broker in a commission, you may be able to hire them for a fee to provide comparative analysis, opinions of value or simply for their time to show you around.
- Financing – Generally your contract to purchase real estate at foreclosure will not be contingent on financing and therefore it helps to have your financing commitment prior to making a bid. Contact your bank or mortgage broker and explain what you are hoping to do, if they aren’t enthusiastic about working with you, go find another one.
- Public Records – A trip to the town offices is highly recommended. Check zoning, permits, code violations, taxes, and try to talk with whomever you can. Town officials may know a property better than any broker or owner.
- Property Inspections: Depending on who is conducting the auction and the status of the property, prospective buyers may only be able to inspect the property from the exterior. If a professional auction company is handling the sale every effort will be made to allow potential buyers interior inspections at specified time periods.
In most cases auction companies prepare and provide comprehensive property information packages (PIPS) containing as much information about the property as possible. These information packages will save you both time and energy in chasing down documents and public records, but are not substitutes for conducting your own due diligence. With this information and a bit of entrepreneurial spirit you will discover there is upside in participating and buying real estate at auction.
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