Buying a house at auction is an "adventure," says Nedalee Thomas, a homeowner in Orange County, CA -- and she should know. Thomas, a former Realtor, purchased her three-bedroom HUD home through a stressful, fast-paced auction process.
"My prayer was, and had been for many years, that I would get a home at a discount," she says. And so she did: The auction process netted her a dream place well under market price. She paid about $250,000 for the property -- an astonishing deal, especially considering nearby homes go for nearly double.
In the four years since she bought it, the home's value has increased by $200,000. "I never expected that," Thomas says.
Looking to score a sweet deal of your own? Auction homes provide a number of benefits, but the process seems designed for a specific, adventurous kind of person. Here's what to know going in:
You should buy a house at auction if you're…
… patient and brave. While Thomas would buy her home through an auction again "in a hot second, absolutely," the process was undeniably long and arduous.
One of the biggest differences between buying a home at auction and the traditional route? You don't get to go inside the home before submitting an offer.
Before she put in her bid, Thomas looked at the exterior and peeked through the windows. The next day -- after submitting an offer -- she returned for a thorough walk-through.
"It was trashed on the inside," Thomas says. "They had taken the shower heads, the light fixtures, and the fronts of the cabinets. The kitchen window had been painted lavender."
But Thomas likes a challenge, so she kept moving forward.
The bidding process can be interesting
Once she submitted her bid for $251,551.51 (a highly specific number chosen partly because it was a hair over $250,000 and set her apart), she had to wait three days for an answer.
"I thought nobody would outbid this crazy number," Thomas says. Still, they did -- but then one by one, the higher bidders either dropped out or were disqualified. Soon, the house was hers.
Some home auctions involve in-person bidding, where you can view the property and compete directly against other potential buyers. But buying as is means you might end up with a bad roof and a useless basement. Plus, investors flock to these listings, offering high, all-cash bids. Even if you're bold, you might have to unleash your inner gambler to win the home.
You should never buy a house at auction if you…
… have a very specific vision regarding what your future home should look, feel, and smell like. If you have some very particular, intractable ideas about what you want and need, skip the auction.
Picky buyers might find themselves stranded in a sea of not-quite-right listings. You have to be willing to accept that you might not get the four-bedroom ranch of your dreams. The kitchen probably won't have an open layout. You might have to prepare for wood paneling.
Thomas had only three requirements: "I wanted a home at a discount, I did not want to fight for it, and it should have a view," she says. "I got all three of these things."
No, Thomas didn't get quite everything she asked for. Her auction home is located on a lake, but a previous owner had installed a bedroom closet that blocked what should be a stunning view.
"I joked that the closet had a lake view," she says. To fix it, she changed the home's layout to make room for a window.
Make sure to do plenty of research on the market
Any time you're buying a home, you need to do your homework. But those rules are twice as important when you're buying a house at auction -- especially if you're attending a live auction, where excitement and emotion can cloud your judgment.
At the first auction Thomas attended, shortly after the housing crash, she decided the property wasn't worth the cash.
"I absolutely guarantee you that the price they paid was more than it was worth," she says. Two bidders went back and forth six times before settling on a price, and "the reason the other people weren't bidding was because it started out too rich in the first place."
Even if you're not planning on attending an in-person auction, a thorough understanding of the market in the area you'd like to buy is essential. Even HUD auctions move quickly, and you'll likely need to put a bid down on the spot.
"You need to look at comps," Thomas says. ( Comps are comparable sales, or similar houses recently sold in the same area.) "You need to be aware of what the value in the neighborhood is."
Make sure to budget (time or money) for repairs
Remember Thomas' missing shower heads, light fixtures, and cabinets? All of that needed to be repaired -- and that comes at a price. She originally budgeted $35,000 to get her new home into shape, but she ultimately spent about $85,000 on rehab.
And cash isn't the only precious resource spent in a renovation. Thomas spent nine months living in her office while construction crews worked on her new home.
Despite the long wait and huge expense of repairs, Thomas says buying her home at auction was a fabulous experience. But homeowners looking to follow her lead need to be prepared for the pitfalls -- and having an adventurous spirit won't hurt.
Source: Realtor.com via Fox News
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