What You Need to Know About Investing in Real Estate Auctions
- Spring Valley, The Investor's Bank
- Apr 15
- 7 min read
The April Auctions alliteration has me excited to share ace auction tips with our readers. Below is an in depth review for navigating real estate auctions. We'll cover the varying types of auctions, mitigating the risks of auction purchases, where to source auctions and closing the deal.
Types of Real Estate Auctions
Judicial Auctions
Foreclosure Auctions-
Sheriff sale auctions are public events where the auction proceeds are utilized to settle these debts. Any surplus funds are then applied first to other subordinate debts on the property and subsequently to the owner.
Delinquent Tax Sale & Tax Lien Certificate Auctions-
These auctions are quite similar to sheriff sales. The main distinction is that they usually eliminate all other liens, making them somewhat safer.
Criminality Auctions-
These sales are few and far between, so we won't mention them again, but forfeited properties seized by the Justice Department are available for sale through the General Services Administration website and US Department of Treasury for federal tax delinquencies.
Court Ordered Auction by Private Selling Officer (Judicial in nature, but different regulations than those auctions held at the county level, so we'll give these their own category)
A Private Selling Officer (PSO) is a court-appointed official tasked with selling foreclosed real estate through a judicial sale, taking the place of the county Sheriff. PSOs are real estate experts who possess both a real estate license and an auctioneer’s license. Unlike auctions conducted by the county Sheriff, PSOs can offer commissions to real estate agents involved in their auctions. Furthermore, PSOs are permitted to conduct open houses for vacant properties and provide deeds to auction winners immediately upon receiving payment. Ohio is a leader in these types of auctions. Check with your state to determine if PSO sales are available in your area.
REO Sale Auctions
Auction of Bank-Owned Properties Following Foreclosure-
If a property is auctioned at a Sheriff sale and remains unsold, or if the bank buys it back, the property returns to the lender and is termed as real estate owned, or REO property.
REO auctions can differ significantly, as the bank and auctioneer typically set the rules. Nevertheless, state regulations still apply to some extent. Occasionally, the rules may differ for properties within the same auction, making it essential to thoroughly review the terms of each auction before taking part.
At times, REO auctions provide opportunities for inspections, title insurance, specific days to preview the property, and even financing options. However, there are instances where these auctions necessitate cash payments, and you might need to handle evicting the current occupant.
Besides the property's bid price, you will usually need to pay the auctioneer a "buyer's premium," which is generally a 5-10% fee of the winning bid.
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 the listing and marketing materials, so 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.
Mitigating the Risk of Buying Site Unseen
As you're aware, the majority of auctions don't allow you to step onto the property, let alone inspect the interior, receive disclosures, or conduct a title examination, making due diligence difficult.
In our digital era, you can utilize online county records to examine deeds, mortgages, and property transfers. The property you are purchasing is the one detailed in the legal description of the mortgage or deed. The listed address or the assessor’s parcel number on the document is irrelevant; only the legal description in the mortgage or deed is considered.
In sheriff sales, purchasing the property means you take on any existing liens and encumbrances. If you win the bid and later find an unrecorded lien, a junior lien, or an unexpected squatter on the property, it's your responsibility to address it. Use public records or your professional network to research not only the property records but also the owner's civil suits that might indicate liens. If title issues are found during the deed confirmation process after the sale, the sale is usually voided, and you lose the property.
Look for methods to obtain past sale listings, if available, to check for condition and any preexisting issues (having a real estate agent as a friend is beneficial at this time!).
You might have to evict the previous homeowners, tenants, or squatters. If so, you will need to take legal steps to remove them from the property. This requires a thorough understanding of local eviction laws. Offering cash to encourage tenants to leave might be the most cost-effective and efficient method to regain control of the property. If possible, visit the property and inspect it from the outside for signs of occupancy. Additionally, you may not simply receive the keys to the property. Depending on the auction type and specific regulations, you might need to hire a locksmith.
It will require cash to avoid being in contempt of court. All sales are final. A significant deposit, or occasionally full payment, is required immediately after a winning bid. This is where having a relationship with a reputable lending institution, such as Spring Valley, becomes beneficial. Since our specialty is real estate investing, we are equipped for quick closings to provide you with the cash necessary to replenish your capital and advance to the next stage of the investment.
You may encounter right of redemption laws if the property is in a state that grants redemption. Meaning, homeowners may be able to repurchase their property even after its sale at auction. They can reclaim their home for a period of time after the sale by paying what they owe on their mortgage or property taxes.
Make sure you know the law of the land where you are bidding. If a homeowner exercises the right of redemption, the lender will compensate the buyer for their legal losses and utilities, but not any money that has been put into the property for repairs. Sometimes you can reach out to the previous owners and discuss their future plans. In states like KY (if winning bid is under 2/3 of the appraised value), this means the property is held up until the redemption period is over... No eviction, no wholesaling and proceed with extreme caution when renovating.
Sourcing Auctions
The auction landscape is shifting to almost exclusively online platforms for all auction types. In 2024 Hamilton County Ohio joined the ranks of online foreclosure sales and have announced their other property sales will soon follow suit. Some of our small local municipalities are still operating in person court houses auctions; for the time being anyway.
Online Judicial sales are operated by a 3rd party site determined by the county. Simply Google 'your county sheriff's office' or 'your county + real estate auctions'. For those smaller counties still operating in person sales you can find the location and sale details on the county's Master Commissioner's or Sheriff's websites. County newspapers also publish weekly auction information.
PSOs are authorized to list properties with their real estate brokerage, allowing the properties to be listed in the MLS and online with cooperating real estate firms and other websites such as Zillow, Realtor.com, LoopNet.com, and many others. PSOs are required to disclose the nature of the sale in the marketing remarks, so end-users should be able to easily distinguish these sales from other real estate agent sales.
REO Auctions will also be found by doing a browser search for "REO auctions". Hubzu, Williams & Williams Real Estate Auctions and Auctions.com are big auctions houses for these types of sales. How to Buy a Bank REO (auction.com) provides a thorough review of the REO purchasing process.
Closing the deal
Once you are declared the winning bidder what's next will vary a bit from quick locksmith solutions to redemption periods depending on the auction format. No matter the auction format, the following will occur:
Complete the sale – Meet with the auctioneer (online registration often takes care of this step prior to bidding) 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 – 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 5-10 business days in advance. Be sure to check the rules for the particular type of auction you will be attending. Pay the required amount on the spot in with the accepted form of payment. Any overage paid will be refunded to you when at the time you take deed.
Taking deed – The Deed of Sale confirms 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.
The Takeaway
In real estate auctions, the potential for high risk is balanced by the chance for substantial rewards. Thorough preparation can help reduce risks and increase your likelihood of achieving those rewards.
The content of this page is not intended for investment advice
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