Real estate auctions are a great place to quickly and efficiently find serious deals. If you know what you’re doing, auctions can be your go-to source for finding amazing investment deals. After all, where

Real Estate Auctions - Your Guide To High Stakes Investing

Written by:
Aaron Norris
Written on:
September 2, 2020

Real estate auctions are a great place to quickly and efficiently find serious deals. If you know what you’re doing, auctions can be your go-to source for finding amazing investment deals. After all, where else can you find investment properties hanging off a tree waiting for you to pluck them?

And while many real estate investors have built fortunes from buying properties at auctions, others have not found success and have even ended up losing everything.

The key to not losing your shirt at real estate auctions is being prepared. Real estate auctions can be fast and furious. If you’re not prepared, you can leave with a property you didn’t really want at a price that in retrospect, doesn’t really make sense.

Being prepared means knowing what your target properties are, doing your homework on them, and understanding what your financial limits are. But it also means knowing the type of auction you’re participating in.

Some real estate auctions are incredibly high risk – best suited for seasoned veterans who have been battle-tested. While other auctions are safer – best suited for those with little to no experience. But how do you know which is which? How do you know which auction is right for you?

If you go into the right real estate auction prepared, having done your research and homework, you may find yourself happily walking away with an amazing deal because you knew and understood the rules to play by.

Perhaps more importantly, you knew where to find the right data to help you bid appropriately.

So, while there is high risk with real estate auctions, there can also be very high reward – you just need to be as prepared as possible to mitigate that risk and to boost your chances for that reward.

What Is Real Estate Auction Investing And How Is It Different From Other Buying Strategies?

When you think of real estate auctions, you probably imagine abandoned run-down houses in foreclosure where flippers buy them sight unseen. In reality, there are several types of auctions ranging in risk and drama. We’ll cover all of the different types below.

But first, let’s review auctions as a real estate investing strategy, as it’s very different than most common investment strategies.

Targeting and buying a preforeclosure property, absentee owner property, free and clear property, or various other types of investment properties, often still involves buying the property directly from the owner, using escrow, buying title insurance, and even using financing.

Now, often at trustee sale auctions, tax auctions and sheriff sale auctions, you’ll find there’s a much shorter time frame to research a property. And often there’s no opportunity to do a typical professional home inspection, roof inspection, septic inspection, pest inspection, and more.

And while you can always get professional title research done, you may not be able to get title insurance.

There’s simply a complete lack of access to these properties. So even experienced investors don’t have a chance to complete their due diligence to check for fundamental problems.

Also, depending on the type of auction, you may find yourself with a property currently being lived in, which means you’re responsible for evicting the tenants.

If you’ve never been to a live real estate auction, you might be surprised by how they happen and some of the small nuances that only seasoned investors know to be on the lookout for.

Watch the video below for a detailed, step-by-step experience of a live real estate auction:

You Can Lose Everything At Real Estate Auctions… If You Don’t Know The Rules!

In order to win at real estate auctions, you have to know the rules – and not all real estate auctions have the same rules. So if you learn how to play by the rules, you can end up with some great deals. If you don’t, you can end up with nothing, or worse, lose everything.

Types of Real Estate Auctions

Below is a list of the primary types of real estate auctions. Your first step to successfully winning at a real estate auction is figuring out which one is best for you.

Sheriff Sale Auctions – Judicial Foreclosures

Sheriff sale auctions are public auctions of properties that are the result of a court order. Most commonly, the properties are being auctioned because of foreclosure, but it can also be due to tax liens or lawsuits, wherein the home must be sold to pay according to the judge’s ruling. The proceeds from the auctions are used to repay these debts, with any excess proceeds going first to other junior debts on the property, and then to the owner.

Where to Find Sheriff Sale Auctions

The Sheriff is generally an elected county official that enforces the law in unincorporated areas (areas outside of cities, where law enforcement is handled by city police departments), and typically serve as officers of the county courts, which is where their responsibility for court-ordered sales comes from.

To find information on Sheriff sales in your county, do a Google search for your county + “sheriff sales”, or go to your county Sheriff’s website.

You can also use third-party services like PropertyRadar that provides a list of Sheriff sales. When coupled together with PropertyRadar’s enhanced public records data about each property, you’re better able to thoroughly research each opportunity.

Pros & Cons of Sheriff Sale Auctions

Pros – Buy below market value, doesn’t require negotiating deal with owner, less competition.
Cons – no inspections, no title insurance, may have to evict occupant, no financing – typically pay in full upfront, money may be tied up during redemption period, buyer is responsible for senior debt including property taxes.

What Types of Investors Are Suited For Sheriff Sale Auctions

  • Experienced
  • Have access to capital
  • Do enough deals to be able to afford occasional losses
  • Not recommended for those buying fewer than 10 properties a year

Pro Insights – Sheriff Sale Auctions

The saying “cash is king” is the name of the game in judicial foreclosures. Payment in full is typically due immediately via Cashier’s check upon a winning bid. In cases where a sizable deposit is required upon a winning bid, the remainder is usually due the same day. Absent documentable fraud or unfairness, all sales are final. If you are the winning bidder and later discover an unrecorded lien, you accidentally bid on a junior lien or have an unexpected squatter that moved into the property; it’s too late. The property is yours. It’s why this buying strategy is risky and why your competition is typically more sophisticated. It’s also not unusual for seasoned pros to purposefully bid up newbies appearing at the auction in hopes to scare them away indefinitely. Thorough research on the property, title, tenant, and local rules involving evictions will go a long way to preventing a serious case of buyer’s remorse.

Trustee Sale Auctions – Non-Judicial Foreclosures

In some states, properties are sold by non-judicial trustees, instead of by the county sheriff’s office. Regardless, the type of properties being auctioned are the same.

Where to Find Trustee Sale Auctions

Unlike Sheriff sales, where each county typically has only one Sheriff’s office where you can find a complete list of upcoming sales, there can be any number of Trustee’s operating in a given area. And where they operate can change over time. Because of this, the only reliable place to get a complete list of upcoming trustee sales is from the County Recorder’s office.

And though you may also find notices of trustee sales in your local newspaper, or even pinned to bulletin boards at the county courthouse, neither reliably provides a complete list.

When you go to the County Recorder, you’ll have to search for document images of each trustee sale. Once you have each document, you’ll need to copy the information for each sale into your own list – it’s obviously time-consuming but it is free.

On the other hand, you can often buy each notice from the Recorder, but this gets expensive unless you live in a State where notices are made available online for free.

IMPORTANT NOTE – trustee sales are often postponed, so to get a complete list of what is currently scheduled for sale you may need to look at every notice going back a year or more.

As with Sheriff sales, you can also use third party services like PropertyRadar that provides a complete list of trustee sales. And when coupled together with PropertyRadar’s enhanced public records data about each property, thoroughly researching each opportunity becomes much easier.

Pros & Cons of Trustee Sale Auctions

These types of auctions are nearly identical to sheriff sales, just managed by a trustee instead of a county sheriff’s department. They hold the same level of risk and reward.

Pros – Buy below market value, doesn’t require negotiating deal with owner, less competition.
Cons – no inspections, no title insurance, may have to evict occupant, no financing – typically pay in full upfront, money may be tied up during redemption period, buyer is responsible for senior debt including property taxes.

What Types of Investors These Auctions Are Suited For

  • Experienced
  • Have access to capital
  • Do enough deals to be able to afford occasional losses
  • Not recommended for those buying fewer than 10 properties a year

Pro Insights – Trustee Sale Auctions

Just like judicial foreclosures, cash is king. Your competition will range from a local Main Street flipper to deep-pocketed Wall Street firms buying properties to hold. Payment in full is typically required immediately upon winning bid via Cashier’s check. Absent documentable fraud or unfairness, the sale is final. If you later discover you accidentally bid on a second trust deed, find black mold in the property, or discover a PACE loan attached to your property taxes, it’s too late. And just like judicial foreclosures, your competition at the sale will purposefully run up your bidding price attempting to get you to overbid, hoping you’ll fail and never return. Horror stories exist of newbie investors winning only to hear from the competition post-win:  “You know that property was burned down, right?” The competition is sophisticated, and the strategy risky, which means your research game must be strong. Thoroughly researching the property, title, inhabitants, and local rules around evictions are necessary for trustee sales success.

REO Sale Auctions – Auction of Bank Owned Properties AFTER Foreclosure

When a property goes up for auction at a Trustee or Sheriff sale but doesn’t get sold, the property goes back to the lender (e.g. – a bank) and becomes what is known as “real estate owned” or an REO property.

How each bank chooses to sell these properties will differ, and sometimes the banks may use a different approach for each property.

Many properties will be listed with an REO broker, that will sell the property through the local multiple listing services (MLS), and those will never go back to auction. Some will be sold as part of a bundle of properties to a large investor. Others will simply go back to auction.

These REO auctions are often referred to as “foreclosure auctions”, but they really aren’t. Recall that it is at the Trustee Sale and Sheriff Sale auctions where the actual foreclosure process takes place, as mandated by law.

You could refer to these as an “auction of foreclosures”, since these were all foreclosed upon. But these auctions are best described as REO auctions, as they are auctions of previously foreclosed properties that the banks now own.

Unlike Sheriff and Trustee sales, where the rules are set by the state, REO auctions can vary quite a bit, with the bank and auctioneer often determine the rules. Having said that, REO auctions are often still state-regulated to a degree.

Sometimes REO auctions offer inspections, title insurance, certain days where you can preview the property, and even financing. Sometimes these auctions require you to pay in cash and you may have to deal with evicting the current occupant.

INSIDER TIP #1: Often you will have to pay the auctioneer what is known as a “buyer’s premium” in addition to the amount you bid. This catches many by surprise, because in most real estate transactions the seller pays the commission, not the buyer.

INSIDER TIP #2: Sometimes you might find the rules will vary between properties…at the same auction. Bottom line it’s super important to carefully read the terms of the auction before participating.

Where to Find REO Sale Auctions

The following companies are some of the better known REO auctioneers.

Pros & Cons of REO Auctions

Pros – Financing may be available, inspections may be available, title insurance often offered, properties may be fixed up, auctioneers typically offer more customer services / support then other auction types.

Cons – The rules aren’t mandated by the state, so you need to carefully review and understand the rules for each auction before bidding.

What Types of Investors REO Auctions Are Suited For

Buying REO properties can be a great fit for newer investors, because there’s typically lower risk involved. That’s because many REO auctions offer title insurance, financing, inspections and the ability to preview the property.

Of course, the reward may not be as substantial as what you might find at other auctions, but when you’re just getting started, REO auctions are about as low risk as you’ll find when it comes to real estate auctions.

Of course, you should always check and understand the rules for each REO auction to make sure it’s a good fit for you.

Pro Insights – REO Auction

Some auction companies focus strictly on real estate auctions while others specialize in equipment, appliances, estate, or art. Real estate pros search for auction houses that attempt property auctions when it’s typically not their expertise. Investors watch for mistakes in marketing, errors on property details, and understand fewer bidders may show up. Also, understand “shill bidding.” The client of the REO auctioneer is the bank. It is the auctioneer’s fiduciary duty to get the highest price possible for their client. One of their favorite tools is shill bidding, which has the auctioneer purposefully drive up the price against unsuspecting bidders. It sounds illegal, but read the fine print of the auction house. They have every right to point to a nonexistent “bidder,” ratcheting up the price one more notch in hopes you’ll outbid them one more time. Online auctions allow this to happen without bidders witnessing it. While REO auctions tend to be less risky than their courthouse brethren, investors still need to do homework to understand the rules of engagement.

Property Tax Sale Auctions – properties in default on their property taxes

Property tax sale auctions are typically held annually to sell properties with unpaid property taxes. The Treasurer or Tax Collector of the county has the right to sell these properties after the taxes have been delinquent for a certain amount of time, typically at least five years.

Where to Find Property Tax Sale Auctions

The county Treasurer-Tax Collector is generally an elected county official that has the responsibility for collecting taxes. To find information on tax sales in your county, do a Google search for your county + “tax sales”, or go to your county Treasurer-Tax Collector website. Many county Treasurer-Tax Collector offices will handle these sales themselves, usually at a live event, while others may use a third party like Bid4Assets.com to handle the sale, sometimes online.

Pros & Cons of Property Tax Sale Auctions

These types of auctions are nearly similar to sheriff sales and trustee sales. The biggest difference is they typically wipe out all other liens so can be a little safer.

Pros – Buy below market value, doesn’t require negotiating deal with owner, less competition.
Cons – no inspections, no title insurance, may have to evict occupant, no financing – typically pay in full upfront, money may be tied up during redemption period which can be upwards of an entire year.

What Types of Investors Property Tax Sale Auctions Are Suited For

  • Experienced
  • Have access to capital
  • Do enough deals to be able to afford occasional losses
  • Not recommended for those buying fewer than 10 properties a year

Luxury Property Auctions – high-end real estate not in default

Luxury property auctions don’t usually feature properties in mortgage or tax default. Rather, these are high-end properties sold at auction to avoid the lengthy time on market (sometimes in excess of a few years) that luxury properties often face. The rules for these auctions are set by the seller and the auctioneer, so be sure to read them carefully before bidding.

Where to Find Luxury Property Auctions

Pros & Cons of Luxury Property Auctions

While you can’t expect to walk away with a killer deal every time, these sellers typically have selected an auction because they really need to sell by the auction date, rather than having the uncertainty of listing the property with an open-ended timeframe.

With that time pressure, they may be willing to accept less, sometimes significantly less, than the value they might get waiting for the right buyer. On the other hand, really hot properties may sell for more due to the excitement and competition of an auction.

What Types of Investors Luxury Property Auctions Are Suited For

  • Anyone looking for a deal on luxury property.

Pro Insights – Luxury Auction

Real estate professionals take a ton of time preparing for auctions. Luxury auctions are an excellent place to briefly discuss the differences in three types of auctions:

  • Minimum bid auction: Also known as a published bid auction, the seller and the auction house will publish this agreed-upon price in their marketing. While bidding may start lower, the property will not sell until it reaches this minimum price. If bidding doesn’t reach the number, the seller retains the property. Potential buyers like the transparency, sellers like the safety net and control.
  • Reserve auction: Unlike the minimum bid auction, a reserve auction allows a seller to set a price that is undisclosed to buyers. Prices that appear in marketing doesn’t necessarily have nothing to do with what the seller will ultimately accept at auction. Sellers like it because they retain control. Buyers dislike this form of auction because they may end up wasting resources preparing for an auction where the seller is just completely unrealistic. Auctioneers also don’t like this type of auction if it’s paired with an unrealistic seller because they don’t get paid unless a property sells.
  • Absolute auction: This is the most exciting form of auction. When an auction is marketed as an absolute auction, it means the highest bidder wins no matter what the price, guaranteed. From the seller perspective, this appears very risky because they won’t have final say if the bidding does not reach expectations. However, when auctions are marketed as absolute, it’s more likely to draw serious bidders in quantity ready to buy, not bid.

Government and financial institutions have been heavier users of absolute auctions. But, auctioneers will always steer sellers to this type of auction whenever possible because it’s the most exciting and draws the most bidders. When it comes to luxury real estate, it’s important to know the difference in auction types because opportunity may be found in failed minimum bid and reserve auctions. When a property does not sell at auction, it could signify the auctioneer lost control of their client and could not convince them to hold an absolute auction or get them to be realistic on price. A pro investor knows to follow up and see if there’s a chance to purchase the property after the fact. There may be a creative way to solve an issue the seller is facing.

Other auctions – offered by seller, not in default

It’s also possible to buy properties being auctioned off directly by the seller instead of the bank. Most of the auctioneers that offer auction services to banks for REO auctions, will also accept properties from anyone else as well.

While auctions have traditionally been thought of only as a last-ditch effort for distressed properties, more and more sellers are turning to auctions as a way to get out of their property faster than the open-ended process of listing the property on the traditional real estate market. Some of the most opportune times to hold auctions is in hot markets. Pitting all interested and qualified parties against each other in a limited time frame could be a powerful way to reach an excellent sales price.

Where to Find These Auctions

Pros & Cons of These Auctions

Pros – Financing may be available, inspections may be available, title insurance often offered, properties may be fixed up, auctioneers typically offer more customer services / support then other auction types.

Cons – The rules aren’t mandated by the state, so you need to carefully review and understand the rules for each auction before bidding.

Important Note – There are no guarantees that the sellers are willing to part with their property for a price that makes sense for you, but since they’ve listed it at auction, there’s a good chance you can get a great deal, especially for a property that you plan to rent out.

Local Property Auctions

Auctions don’t always deal with distressed dispositions of real estate. Sometimes, auctions simply serve the function of a speedy sale to qualified bidders on a specific date. It’s the Ebay of real estate.

Some sellers will use professional auctioneers like the ones we listed under luxury real estate auctions. They have national footprints, beautiful technology and robust marketing machines to attract larger numbers of qualified bidders. But, not all auctions are large. Some auctions are held by small, local auctioneers. Some auctions are even a single asset by a regular investor. As an example, a wholesaler can put together a silent-bid auction where they invite their list of qualified real estate investors to a recent buy and they can bid against each other.

Where To Find These Auctions

Professional auction companies are excellent at marketing. When it comes to local auctions help by the pros, don’t be surprised if you receive a mailer, see ads in the local paper and online, and see signage directing you to upcoming opportunities. Marketing varies by location, the asset being auctioned, the number of properties involved in the auction, and the auction company itself.

Go on Google and type in the city where you are interested in investing and type “real estate auction.” If there are auction opportunities in the area, this method will typically help you identify the auction companies making them happen. You can sign up to be notified about upcoming auctions.

Pros & Cons of Local Auctions

Pros – Financing may be available, inspections may be available, title insurance often offered, properties may be fixed up, auctioneers typically offer more customer services / support then other auction types.

Cons – The auction may be a reserve or minimum bid with unrealistic sellers. Contact the auctioneer to understand the rules.

What Types of Investors These Auctions Are Suited For

  • Newer investors
  • Local real estate investors
  • Anyone interested in the particular property

Pro Insights – Local Real Estate Auctions

Sometimes an auction company takes on an unusual category. As an example, an auction company that typically auctions farm and business equipment suddenly has a piece of real estate in the mix. Look for errors in listings and marketing, and understand their target audience won’t always be interested in something outside the norm. You may find a good deal when a very experienced auction company lands an asset they don’t typically handle.

Also, look for new auction companies. Not all auction companies are the brand names that have been in the business for decades. These smaller auction companies may have been chosen because they aren’t as expensive. It also means they don’t typically have marketing expertise. Look for poorly advertised auctions, mistakes in advertising, strange locations, odd inventory, mixed inventory, or simply new entrants in the space.

Real estate is a local and relationship-driven business. It wouldn’t seem like relationships would come into play in the auction strategy, but it does. Auction houses don’t make money unless a property sells. Nothing is more frustrating to an auctioneer than spending time and money on an auction that fails because the seller was unrealistic on price. A savvy investor knows to approach a local auctioneer after a failed auction and submit a serious, well-researched cash offer. In many cases, having a serious cash offer backed by a knowledgeable and reputable local investor allows the auctioneer one last chance to make a commission. Cementing yourself as that local expert could see auctioneers calling you on any and all failed auctions in the future.

IRS Auctions – seized for nonpayment of federal taxes

Properties auctioned off by the IRS have been seized or acquired due to nonpayment of federal taxes. The properties are listed with state, city, basic property details, and the minimum bid. You can search by city or state. The list of upcoming auctions is usually updated every week.

Where to Find IRS Auctions

Pros & Cons of IRS Auctions

Unfortunately, there aren’t dozens and dozens of properties to choose from. There are very few properties that get auctioned off by the IRS every year, and at any given time there are likely to be more canceled auctions than upcoming auctions.

Pros & Cons of IRS Auctions

Pros – More time to fund a deal, inspections may be available, title insurance often available with title offered spelled out on the IRS site. Terms of the sale, down payment requirements, and details are fairly detailed per property.

Cons – The government reserves the right to set minimum bids but gives itself the right to not only bid against potential buyers, but also resend the sale after the auction.

What Types of Investors IRS Auctions Are Suited For

  • Local investors
  • Experienced investors

Bankruptcy Auctions

Individuals and businesses can declare different kinds of bankruptcy including Chapter 7, Chapter 13, Chapter 12, and Chapter 11. They do so when they are unable to pay debt obligations. Bankruptcy is federal law so when declared, the individual or business seeking bankruptcy enters the federal system and typically files in the state where they reside, even if they have assets in numerous states.

In a bankruptcy, a discharge is a court order which states the individual or business does not have to pay most debts (subject to some exemptions). A Chapter 7 filing transfers the assets to a trustee who is then tasked with overseeing the liquidation of the assets to pay off creditors.

For this article, we’ll simply look at a Chapter 7 bankruptcy where a discharge has taken place and real estate liquidation must take place to pay off creditors. The assets are transferred to a trustee who will use the assistance of an agent and other professionals as needed to market the property.

A notice of sale of estate property is posted on the appropriate District website of the United States Bankruptcy Court. The notice of sales will list the hearing date, the location of the hearing, last date of objections from creditors, details on the property to be sold, terms of the sale, and how to qualify to overbid. On the notice of sale is a proposed sale price. This is an actual offer obtained from a qualified 3rd party. If no other party shows up to bid over this amount, that is the dollar amount the property will sell for and behaves like a minimum bid auction.

The notice of sale will also contain contact information for the parties needed to ask questions and to investigate opportunities such as the listing broker. It’s up to you to do your due diligence to decide how much to offer on the property. If the property looks promising, follow the guidelines as presented in the notice of sale and offer an amount over what is posted. If no other bidders are present, including the bidder posted on the notice of sale, you may get the chance to purchase the property by making the minimum overbid.

Pros & Cons of Bankruptcy Auctions

Pros – More time to fund a deal, inspections may be available, title insurance often available with title offered spelled out. Terms of the sale, down payment requirements, and qualifying for the purchase, are posted in the notice of sale. May not be required to be all cash and the deposit may be minimal.

Cons – The process is not about relationships and the trustee is simply trying to liquidate assets. Bankruptcy isn’t always easy to follow and hearings may be postponed if challenged by the creditors, the court, or the debtor.

What Types of Investors Are Suited For Bankruptcy Auctions

  • Local investors
  • Experienced investors

Pro Insights – Local Bankruptcy Auctions

Not all bids are created equal. The offer as presented on the notice of sale may have contingencies. Agents selected by the trustees are often very consistent so you may be able to build a relationship with the agents representing the properties on behalf of the trustee. If there’s a challenging situation with the property or the agent has bids that are not on par with the opportunity, you may be able to get a heads up from the agent when an overbid would be a smart decision.

Online Real Estate Auctions vs. In-Person Auctions

More and more auctions are moving online. The move to online has been slow for Sheriff, Trustee, and Tax sales, as doing so often requires changes to state law. Still, some states have made these moves, and with Covid-19, that move may accelerate. You’ll find REO auctions both online and at live events. Some now even offer simultaneous live and online bidding.

Online auctions are especially beneficial to those who want to bid on out-of-area properties or aren’t able to go to a live event due to work schedules or personal circumstances. Online auctions often show the current highest bid but can be subject to “sniping” where folks place their highest bid in the last seconds of the auction so others don’t have time to respond.

Live-event auctions are sometimes preferred by banks because an enthusiastic auctioneer can whip up the crowd to excite people to make higher bids than they might otherwise. Typically at live events, you can “read the room” to get a better idea of interest in the property, and you typically know exactly where bidding stands.

Other real estate auctions, like Bankruptcy auctions, are neither online nor happen at a live event. Instead, buyers submit sealed bids in advance with the results being revealed at a specific date and time set by the court where the highest offer wins.

Tracking Trustee Sales & Keeping Your Foreclosure Search Up to Date

When it comes to high-stakes auction investing, you’re going to want to stay informed, not only about new foreclosure opportunities, but also about the properties you’re already interested in.

In addition to the country’s most comprehensive foreclosure search, PropertyRadar offers sale updates for trustee sale auctions every 15 minutes. You get critical information like:

  • Opening Bids
  • Postponements
  • Cancellations
  • Winning Bids
  • New REOs

PropertyRadar also acts as one central place for all of your pre-auction research, including transaction history, comparable sales, investment analysis calculations, title history, owner demographics and contact information, value, equity, and more.

How To Bid On Properties At Real Estate Auctions?

Different types of auctions can utilize different types of bidding. Before you get to an auction or take place in one online, it’s important to first understand the types of bidding that exist. You will find this information on the auctioneer’s website or you can call to have the information sent to you directly. Once again, it’s important to know which type of auction is being held.

Auction Bidding Type Review

  • Absolute Auction – The property will be sold to the highest bidder no matter what (there’s no reserve). The property will not be returned to the bank. This causes a higher level of attendance and excitement.
  • Minimum Bid Auction – There is a published minimum price, and if that price is not met, then the property will not be sold. This minimum is distributed on flyers and online listings, so that only qualified bidders attend and understand the price desired by the seller.
  • Reserve Auction – While there is no published minimum bid with this type of auction, sellers choose the price at which they will sell but do not have to disclose this information. Often the seller also has a specific amount of time to confirm the sale, usually 48 or 72 hours.

Vetting that You’re Bidding on the Right Property

At a trustee sale or sheriff sale, you are bidding on the lender’s interest in the property as described in the Mortgage or Deed of Trust. The Mortgage or Deed of Trust is the document that gets recorded down at the County Recorder’s Office.

You are buying whatever property is described in the legal description in that Mortgage or Deed of Trust. It doesn’t matter what the listed address is or the assessor’s parcel number that’s on document. It’s only what’s in the legal description on the mortgage or deed of trust that is included. So, it’s a good idea to check. Especially on unusual properties where the possibility for mistake is high.

You should never come down to the courthouse sale and buy based on the address they announce. You really need to pay attention to the loan document number that the auctioneer will announce. Now that you’ve verified your bidding on the right property, it’s time to qualify.

Getting Qualified by the Auctioneer

To bid at a live event, you’ll typically need a Cashier’s check for all or a portion of your maximum bid and a photo ID. At an online auction, you may have to post a deposit in advance. Be sure to check the rules for the particular type of auction you will be attending.

Know the Liens and Individual Property Risks

Most auction sales are made in as-is condition without any warranty. Buyer beware as all sales are final. It should be obvious at this point you can’t call the lender after the sale if your heater goes out or you changed your mind.

They also may not just be handing you the keys to the property. Depending on the auction type, and the specific rules, you may have to call a locksmith. And if there’s somebody still in the property, living there, you’re going to have to evict them. This means you need to be acutely aware of local rules on evictions, as well as the going rate for cash for keys. The cash offer to entice tenants out of the property may be the least expensive and efficient way to gain control over the property.

For trustee and sheriff sales, you are buying the property subject to existing liens and encumbrances. For example, if the loan going to trustee sale is a second mortgage, you will still owe the full amount of the first mortgage. And you also always owe past-due property taxes.

How to Bid in Increments

There are different norms for different types of auctions. Typically, at a Sheriff, Trustee or Tax Sale, the first bid will be for “a penny over”, the opening bid amount. Why leave 99 cents on the table if no else plans to bid. Once others start bidding, it’s customary to raise the bid by $1,000 increments or more. When it starts getting close to the winning bid, you may see that drop to $100 increments. When the last bid is made the auctioneer will give everyone a chance to put in another bid before announcing, “Going once, twice, third and final call.”

Pro tip: After the auctioneer says “final call” you can often still speak up with a higher bid, as long as they haven’t gotten the winner’s cashier check in hand yet.

Practice on Paper First

If you are new to auction investing, it’s smart to practice on paper before you go down to the courthouse steps to try your hand at the real thing.

Paper bidding means writing down what you would have bid, and then later analyzing the flip to see if you would’ve made a good return or not.

Just like a stock market newcomer would do paper trading, paper bidding lets you test and hone your skills. Here’s how it works: research the properties, estimate the repairs, drive by and do a quick exterior inspection if you can, and establish what would be your initial bid and your maximum bid.

You can then later check what the property actually sold for at auction and what it was flipped for by using PropertyRadar. You could even try to keep an eye out for it on a rental listing site.

You can then compare these real transactions against what you would have bid and spent on repairs to see if you would’ve earned enough profit to be worthwhile.

You Won a Foreclosure at a Real Estate Auction – Now What?

What happens next depends on the type of auction. You might be able to get a locksmith to open your door in just a couple of days. Or, you may have to wait out a redemption period, a length of time ranging from several days to a year depending on the state.

The redemption period often applies to sheriff sales and sometimes applies to trustee sales (for example, with HOA liens sold at trustee sales in California). During this time, you can’t evict occupants or begin construction work on the property. During this time, the owner has a chance to pay back what they owe, plus interest or a penalty that often goes to the successful bidder if they had to pay in full at the time of the auction, and regain the property.

The next steps after you win an auction are:

  • Complete the sale – Meet with the auctioneer to provide your contact information, how you want the property to vest (for example as an individual, a partnership, an LLC or a trust) and pay up.
  • Payment– Pay the required amount on the spot in cash or with a Cashier’s check (or multiple Cashier’s checks). Often on a trustee, tax or Sheriff sale, any amount you tender over the winning bid amount is returned in a refund check along with the deed approximately ten days following the sale. This is necessary as you won’t have a Cashier’s check ready for the exact amount at the time of sale.
  • Taking deed – The Trustee, Tax or Sheriff’s Deed of Sale confers the title of the property to the investor that placed the winning bid. If the sale has a redemption period you may receive a certificate of purchase entitling you to receive a deed after the redemption period is over, assuming the owner doesn’t pay to redeem the property.

Final Words About Real Estate Auctions

The risk of buying at auction varies a lot based on the type of auction, and can absolutely be worthwhile, if you plan ahead, practice your ROI calculations, hold strong to your maximum bid, and have done your research to avoid hidden costs like senior liens or large past-due property tax amounts.

Investing in foreclosure auctions can be intimidating and scary at first, it can also lead to life-changing deals, which is one of the reasons PropertyRadar has become so popular amongst professional investors. It lets them track trustee sales and sends them alerts to their phone about what’s coming up for auction, and when and where that trustee sale is happening.

For trustee sales, you can get sale updates every 15 minutes, including opening bids, postponements, cancellations, winning bids, and new REOs.

Essentially, PropertyRadar helps minimize risk and puts you in a position to consistently be ahead of your competition, ultimately in the position to reap the big rewards.

Ready to discover and analyze investment deals? Start your free trial of PropertyRadar.

Written by:
Aaron Norris
Written on:
September 2, 2020