With the huge shortage of inventory of homes in Silicon Valley market, some of our investors have turned to buying at auctions which is the right move for these investors. But while buying at courthouse steps make sense for these investors, it might not be right strategy for an average home buyer.
Just like anything other risky ventures, the gain in price point for the property you buy at auction, could be wiped out by serious headaches if you are not a seasoned and experience bidder at the auction. For starters here are a few challenges with buying at auction:
1) Possession: Just because you won the property at the auction, you might not be able to occupy the property right away. In fact, majority of REO homes assigned to us for sale were occupied by previous owners when the banks assigned them to us for sale. We had to negotiate a Cash-for-keys contract to help the previous owners vacate the property. In the case of auction the cost of foreclosure and cash-for-keys will fall squarely on your shoulder.
2) Ownership: After winning at the court house auction, you need to establish ownership by recording your documents the County Clerk’s Recorder office. Some states that have redemption periods, the previous homeowner will have the right to buy back the property providing he pays the full amount of the winning bid. The Redemption periods range from 1 months to 1 year and could be a reason for the previous owner from refusing to vacate the property.
Before bidding on any real estate auction, you need to understand the eviction process. Most states now have Tenant protection laws that will allow the tenants to stay in the property for the duration of their lease even after the sale of the property at the auction. For instance, if the home you won at auction is occupied by a tenant with a valid lease, they have every right to continue to occupy the property for the term of the lease.
As they say, buyer be ware when it comes to buying at Foreclosure Auctions cause it could take you more than a year to occupy the property.