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Foreclosure Auction Facts Every Homebuyer and Investor Should Know

Foreclosure Auction Gavel

If you have been researching information on the foreclosure auction process, then you more than likely have several questions that have yet to been answered through your basic research. For example, you may be wondering if houses for sale at auction are always obtained by the person who places the highest bid at the auction house. Or you could be asking yourself what happens to homes that do not sell at auction and how are the prices of these homes determined.

Below you will find the answer to these commonly asked questions and much more.

Are Foreclosure Auctions Always Successful in Selling Their Properties?

The short answer to this question is no. You can find incredible deals and buy cheap homes at a foreclosure auction; however, just because you are the highest bidder does not necessarily mean that you will walk away with the property.

Sometimes a foreclosure is not sold at auction because the bids are too low (they do not cover the cost of the loan and associated fees) and the lender then acquires the property as collateral for the loan.

What Happens to an Auctioned Foreclosure Property when it’s not sold at the Auction?

If the property does not sell at a foreclosure auction, it becomes a REO (real estate owned) property and is placed on the open market. Banked owned homes (another name for REO properties) are owned by the bank and are placed on the market and sold to the general public - where anyone can make an offer on the home.

Whether the home sells for more or less than what it would of sold for at auction if bidders would of met the bid requirements (a bid that met or exceeded the value of the loan and associated fees) is greatly dependent upon everything from the current real estate market to how long the property remains on the market once it leaves the auction floor. Sometimes these properties sell for more and sometimes they sell for less.

How Do Banks Determine the Price of a Foreclosure if It Does Not Sell at Auction?

If a home does not sell at auction, the pricing for the property is essentially determined by a real estate broker. More often than not, the lender will have a broker place the home on the market based upon the fair market value (FMV) - the estimated value of the property in the current real estate market. This value will vary greatly depending upon the local real estate market, buyer demand, home specifications (number of bedrooms, bathrooms, acres, etc.), and various other factors. These bank foreclosures can often be purchased below market value, often making them great investment properties.

Will REO Homes Need Repairs or Do Banks Fix Them Before Selling?

Regardless of whether you purchase a foreclosure property at auction or once it hits the open market, more often than not the property is sold “as is,” meaning that the bank will not make repairs to the property - that responsibility is left to the buyer. Therefore, when making an offer on foreclosures it is essential that you take into consideration the cost of repairs to ensure that you are making a good investment.

Since these properties are sold “as is” they are often referred to as fixer upper homes - meaning that you may have to make moderate to major renovations to the property before moving into the home, selling the property, or renting it out.

When banks own properties they are required to ensure that the property obtains minimal upkeep - essentially making sure the property is not a hazard or in violation of building codes. However, the bank is not required to keep the property in top-notch shape.

In conclusion, when a property is not sold at auction, it is turned over to the lender and is often placed back on the market by a real estate broker for fair market value - which is determined by an analysis of the current real estate market and other similar properties on the market. These bank owned homes are often fixer upper homes and require minor to moderate renovations, which are to be performed by the buyer.

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