Since the financial crisis of 2008, the real estate market has been flooded with foreclosures, short sales, and auctions.
If you’re a bargain shopper, you might be tempted to get into these down and dirty property sales. But know that these real estate deals aren’t always as much of a bargain as they might initially seem, particularly in the case of home and property auctions.
Buying property from a courthouse auction can leave investors in deeper than they expected, or out their investment all together. Before you raise your hand on the steps of the courthouse, make sure that you’re aware of the intricacies that surround purchasing auctioned property.
Here are three important things you should know right off:
1) Know What You’re Buying
You may think that you’re buying a home or a piece of property, but you might actually be buying a second mortgage. Banks or other entities are required to put up both the original loan and any other secondary loan, though they aren’t required to disclose which they are liquidating the day of the auction– that’s the buyers job.
2) Request a Title Search
A title search can ensure that there are no secondary mortgages out on a piece of property, and no other outstanding liens that would could be responsible for as the new owner. A real estate attorney can help analyze a title and determine if the investment is worthy. While you may initially balk at having to pay an attorney’s fee, it will certainly be less than if you get stuck with a shoddy investment.
3) Prepare to Invest, More than You Think
A major concern with purchasing an auctioned property is that you are unable to really assess the condition of the property before you make the commitment to buy it. Many auctioned properties are in less than optimal shape, no matter how nice they appear from the outside. Remember that you may run into unexpected problems, such as mold, termites, faulty plumbing, foundation problems, or defunct furnaces. Even seemingly basic repairs can add up fast. Make sure you consider this in the price of a property.
If you’re truly considering purchasing property from a courthouse auction, educate yourself in depth about the complications that can come along with bidding. Talk to others who have purchased in this way and attend several auctions to get an idea of how they work. The most valuable way you can spend your money before you go to auction is hiring an attorney who specializes in real estate law. Your lawyer can research the property to the best of their ability. Though they cannot provide you with a guarantee that the property is a good investment, they can spot any immediate red flags that appear.
There are other ways to purchase properties on the cheap– short sales may be a good option, or auctions that are conducted by a bank on a certified home. In any case, you’ll probably need a real estate attorney at some point. You might as well hire one initially to ensure you make informed purchasing decisions.