How I Bought My House at Auction
Have you ever fancied buying a house at auction? Turns out it’s not a totally far fetched concept! If you put in the hard work in researching you can find a great house for way less than it’s value. I was able to buy a house appraised at $165,000. The really crazy thing is I bought it for only $114,000. That means I gained an instant $51,000 in equity. I was very fortunate to get such an awesome deal and it’s all thanks to Sheriff Sales. Oh, and budgeting of course.
What are Sheriff Sales?
A Sheriff Sale is essentially an auction for a house. These are houses that have been foreclosed upon and the banks are trying to recover some of their losses by selling it at auction. This provides a unique opportunity to purchase a house for much less than it is worth. But there is a catch and it is significant. You can’t actually go inside the house up for auction. That’s a huge issue because you can never really know the condition of a house from scoping the perimeter. When scouting out a potential house you can find information about it online through sites like zillow.com but the information is rarely extensive and thus not a satisfactory basis for making such a huge purchase. That is where the risk lies and you should know it is definitely a risky investment.
How to Take Advantage of a Sheriff Sale Listing
My father has been in the house flipping business for many years, and recently I have been helping him gather information that will aid in the buying process. This data is key into determining which houses should be avoided and which should be further investigated. I was already in the loop checking Zillow.com information with each auction listing so I naturally kept an eye out for any houses that I would be interested in.
Get a Loan to Cover Your Bid
This is an area where my connection with my dad was extremely beneficial because I was able to skip this step and buy the property from him with a normal mortgage. However, it is still possible to participate in a Sheriff Sale auction by acquiring a loan for the amount you are willing to bid on a house. At the auction you must pay the full bid amount or else your bid will be revoked. It is important to have the available funds since auctions come and go so often.
Make sure to dive into your budget to find out how much you can afford to bid. You should include a budget for repairs since the auction is an “as-is” purchase. There are a ton of unknowns that can wind up costing a lot to fix. With enough research you can prepare how much you are willing to bid to account for these unknowns.
I kind of hit the lottery when I purchased my house because it was in pristine condition. My dad has been flipping houses for over 30 years and he said that my house was in the best condition he had ever seen from a sheriff sale. I didn’t need to make any repairs it was basically move in ready.
Find The Important Data Points
When’s the Auction
This is a fairly simple and straightforward point, but it is important. If the auction is going to happen tomorrow and you have not had the opportunity to assess the house then you absolutely should not risk placing a bid. It is all about being as prepared as possible before a specific property is going to auction. Someone who flips houses like my dad is always on the prowl checking weeks in advance for potential auctions.
Keep in mind that the actual auction can, and often times does, get rescheduled for a later date. Auctions can be postponed because of several reasons. It could be that the person being foreclosed upon is working with the bank to save their home. It could also be that the bank attempted to sell the house prior to auction and the sale fell through. Just know that you should be at the ready for whenever the auction actually takes place.
Judgement vs Zillow Value
The next key point is to determine if the judgement is exorbitantly high in comparison with Zillow’s estimated value for the property. Now, I may have lost some of you right there. The Judgement is the amount of money that is owed to the bank in order to cover the costs of the foreclosed mortgage. This number will usually be larger than the estimated value due to accrued interest from non-payment. That is where the word exorbitant comes into play.
If the judgement is double to triple the Zillow value then it is not as likely the bank will be willing to lower their upset value. Now, the upset value is the amount of money that the bank is willing to accept to let the property go. This information is not provided in the listing but will be announced on the day of the auction. If you find that the judgement is indeed much higher than the estimated value then you may be wasting your time pursuing a property that may never sell at auction or for an affordable price.
In my case, the judgement was set at $240,000 and the Zillow value was listed at $159,000. That difference is not too extreme that I was able to expect the bank to be more willing to let go of the property. On the day of the auction the bank set their upset value at only $89,000 and so the bidding war began.
Basic Property Information
This information is usually found on Zillow.com and consists of things like: Build Date, Square Footage, # of Bedrooms, # of Baths, and Housing Type (Single Family, Condominium, Multi Family, Town House). Use this information to figure out if you really are interested in the house. You may get lucky and find there is much more information available. This includes data about laundry, installed kitchen appliances, the type of heating and cooling, type of flooring, etc. Not to mention pictures, especially of the inside which will prove to be invaluable for an auction.
Being risk adverse I didn’t bother much with houses built earlier than 2000 or that didn’t have pictures and extra information available. I suggest doing the same in order to minimize the potential unknown issues that come with any house. My house’s zillow page shows the build date as 2007 and has some pictures of the outside and extra information about laundry, flooring, and kitchen appliances. Based on this information it seemed this house could be a very good one to pursue at auction.
Go Look at The House!
You can’t make a purchase of this magnitude without inspecting it in person. I’m pretty sure it’s illegal to bust into a home you don’t own, so try to gather as much information as you can from the outside of the house. You may find that the house looks vacant. You may also find that the house looks lived in which has it’s own list of problems.
A vacant house lacks potential problems that an occupied house has but it also lacks some of the opportunities. There is no way to really determine the condition of the inside of the house since you cannot enter it. However, you will not have to deal with evicting someone which can take months unless they leave on their own accord. Your best bet is to inspect the perimeter of the house and try to see what you can through the windows.
If the house is not vacant you should be aware that the people living there know they are about to lose their house and are probably not in good financial and emotional shape. Please, if you are going to pursue that house, you should include in your budget some money to help them out.
This has three huge benefits:
- You are helping out someone in need to find new housing which will expedite their moving out and your moving in
- You are inclining them to keep the house in good condition since they will see you as someone willing to help versus someone intent on taking from them
- They will be more likely to let you inside the house to assess it’s condition prior to auction, which of course is extremely valuable for determining the worth of the house and whether or not you really like it
In my case, there was a family living at the property. However, when I went to look at the house no body was there so I took the opportunity to peer through the windows and walk around the perimeter of the house. I saw everything seemed really clean and it had nice hardwood floors on the inside. I figured the house might be in really great condition. This gave me a lot more confidence going into the auction that I would really want to pursue this house.
Prepare for Auction Day
I do not personally have experience bidding on my house. My dad’s partner was the one actually participating. I had given them a number not to exceed and they bid up to it. If you feel up for the challenge you can research how to actually bid on a house and what you will need to know for it’s auction day. If you are not, I am sure you could hire someone to bid on your behalf.
Here is a post on Home Advisor that explains in more detail the Sheriff Sale process.
There is a lot of work involved in finding and buying a house at auction but it is well worth it! Stay tuned for the next post on how I was able to afford a big mortgage on my mediocre salary.