Joining an auction can be an intimidating experience for many buyers especially to those who are unfamiliar to the mechanics of bidding in a property auction. Contrary to the popular belief that auctions are reserved only for the seasoned investors, you need not be a master to learn the ropes of participating in an auction. However, sufficient knowledge of how it works and what factors to consider is very important if you want to be successful in bidding for bank owned homes.

Understanding The Basics Of An Auction

Basically, when a home owner fails to pay or update his mortgage and dues on the property, the bank will institute a foreclosure on the property. If, after the extension or before the foreclosure has been completed, the owner fails to update or make current his debt, then the bank will attempt to sell the property in a Trustee sale. But since buyers in a Trustees Sale are required to pay in full and in cash, many properties remain unsold at the end of the sale. Those properties that have unsuccessful bids revert back to the bank as an REO property.

However, banks are generally not excited to the prospect of maintaining a much too large inventory of non-performing assets as these can consume a lot of the banks’ resources. Moreover, banks are aware that a bulky stock of REO properties is not regarded positively by its shareholders and clientele. To avoid this situation, banks usually use independent or third party auctioneers to expose their properties in public sales. These auctioneers will then carry on the task of advertising, putting up notices, organizing, and holding public auctions.

Because auctioneers know that a cash only condition has proven to be a deterrent to many prospective buyers, they have arranged for other lenders to facilitate the lending aspect to auction buyers. This way, buyers no longer need to put up cash upfront in order to purchase a property.

General Requirements In An Auction

First of all, if you are keen on buying bank owned homes from an auction, you should be able to prequalify with the auctioneer’s lending partners. To do this, you must do a little research prior to the sale date.

Second, you must be prepared to pay at least a 5 percent down payment. You can opt for financing for the remaining balance from any of the auction’s lenders and as long as you qualify or meet their requirements.

Third, understand that auctioneers do not work for free. Therefore, it is expected that they would want to earn a certain percentage from each property that is bought and sold at their auction. The usual margin that they add to the purchase price is 5 percent so be prepared to consider this rate when you are buying a property from an auction.

If you do not plan to use any of the auctioneer’s lending partners, you may have to pay the entire purchase price in cash. You or your team, if any, should be able to arrange a financing scheme even before the date of sale.

Also, when participating in an auction, you may be required to put up a proof of funds or show money, usually in the form of a cashier’s or manager’s check, before you can be allowed to place your bid on a property. This is to ensure that you will be able to follow through your bid and complete the sales transaction once the bid has been closed.

Lastly, when buying bank owned homes from an auction, remember that some of them have reserve price which means that if they fail to solicit bids that cover the amount required, then the property will not be sold.