I've had perspective buyers ask me if they should buy their next home at the court house steps auction because they have heard they can get a "deal." Buying at auction is not as easy at it may seem and here are 4 reasons why:
1. Cash Is King!
Properties bought at the court house auction must be paid for in cash. This doesn't mean you have to show up with a suitcase full of cash but you must have cashiers checks in the amount of the final bid price. This is obviously an obstacle for those who do not have the funds and are look to finance a property.
2. Liens On Title!
If you don't do your due diligence, you may end up purchasing a home that has a lien on title that does not get wiped out with the sale and transfers to you as the new owner. These can be IRS, lender, or other liens on title. This could spell financial disaster if you aren't careful. Most professional investors at the auctions have a team that include title reps and have the resources to thoroughly investigate a homes title report to mitigate risk.
3. Must Buy Site Unseen!
You are not allowed to disturb the residents in a home that you are interested in purchasing at auction. Therefore it is difficult to determine the condition inside of the home and a drive by may be the best visual you can get. Many times homes that have gotten to the point in which they are being auctioned off also have deferred maintenance and this means you will have to spend lots of money to get the home back into shape.
4. Limited Inventory!
In my market of Orange County, the court house step auctions sell only a few homes a week even though groves of investors come out every week looking to buy. Most homes on the auction list get postponed or canceled and therefore a large number of investors compete on only a few homes that successfully sell. This means you can really spin your wheels researching a house only to see the home get postponed numerous times or canceled altogether. And for the homes that do get auctioned off, there will be plenty of investors you will have to outbid!
Buying at the court house auctions can result in purchasing a home for below market value; however, there are many risks involved and a buyer really should research and perform their due diligence because a mistake or mis-calculation can cost you dearly.