How To Buy A House At Auction

By Emily Southey | 11 minute read

Are you considering buying a house at auction? We can help! From financing the purchase to making an offer, we’ve put together a comprehensive guide to buying a house at auction, including the pros and cons of doing so.

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How Buying a House at Auction Works

Buying a house at auction isn’t the same as buying a house directly from a seller. However, they do share some similarities. For example, in both a traditional home sale and a house auction, a listing for the home is published online. In the case of a typical home sale, the listing is usually posted on the MLS® or an online real estate marketplace. Whereas with a house auction, the home will be posted on the auctioneer’s website. It will also usually be listed weeks ahead of the auction date to generate buzz.

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Buyers can search home auctions in their area to find upcoming events. They can then peruse the listings on the auctioneer’s website and decide if they want to register to become a bidder for a certain home auction. Depending on the terms of the auction, each buyer might be required to submit a deposit on the day of the auction (this deposit is returned to them if their bid is ultimately unsuccessful). During the auction, buyers will submit bids, either online or in person depending on the type of auction, with the highest bidder winning.

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One of the best perks of buying a house at auction is that most homes have been foreclosed or defaulted on. This means that they are priced at or below market value, which can give buyers a major advantage in a seller’s market.

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Can anyone buy a house at auction?

It depends. Most auctions have strict rules, which determine who can place a bid on a home. Generally speaking, house auctions are most popular among real estate investors, especially the ones that do not have financed purchases. When an auction prohibits financed purchases, this automatically excludes a large portion of homebuyers. However, if financed purchases are permitted, then pretty much anyone could participate in the real estate auction.

Why is a home being sold at auction?

There are many reasons why a home could be sold at auction, however, the two most common are foreclosure and property tax defaults. Foreclosure occurs when a homeowner defaults on their mortgage payments and is not able to work out a repayment deal with their mortgage lender. Foreclosure typically begins after several months of nonpayment. In this case, the mortgage lender would evict the homeowner for nonpayment and put the home up for auction, which would be run by the trustee hired by the lender. 

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Another common way that homes end up at auction is when the homeowner defaults on their property taxes. In this scenario, a tax authority seizes the property rather than the mortgage lender. If the property has tax liens against it, there are two options. The first is a tax lien sale (where the liens are auctioned off to the highest bidder), and the second is a tax deed sale (where the house and its unpaid property taxes are sold at a real estate auction). 

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Beyond foreclosure and property tax defaults, a seller might choose to sell their home at auction if they weren’t able to sell it on the market or if their top priority is speed.

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Do real estate auctions have rules?

Yes, all real estate auctions have strict rules, or terms and conditions, which are published on the auctioneer’s website. It’s crucial for both buyers and sellers to carefully review these rules before the start of the auction. Examples of house auction rules include:

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• Properties are sold in as-is condition, meaning the seller is not required to make any improvements or repairs; 
• Home sales are subject to a set deposit amount (typically 10%), due the day of the sale;  
• Properties are sold without any conditions or contingencies (though home inspections might be allowed before the auction date); and 
• Home sales cannot be financed by a mortgage and must be paid in cash.

The Pros and Cons of Buying a House at Auction

Buying a home at auction is completely different than buying a home the traditional way. So before you decide if it’s for you, let’s consider the pros and cons. 

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Pros

• Houses may be less expensive. The main benefit of buying a home at a house auction is the price. Since many auction homes are sold at or below market value, buyers can save money by purchasing a property at auction. In theory, buyers can purchase homes for as little as the amount owed to the mortgage lender or tax authority. 
• Less competition for homes. There’s nothing more stressful than trying to purchase a home in a seller’s market. Multiple rejected offers and bidding wars would lead anyone to feel disheartened. This is why some buyers prefer house auctions. The strict rules of auctions coupled with the fact that few people know how to buy a property through auction mean less competition. Circumstances will ultimately vary by location and investor activity, but you can generally expect to have less competition when bidding on an auction house.

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Cons

• You may not know the home’s condition. Most homes sold at auction are sold as is with no conditions. This means that the sale won’t be contingent on a successful home inspection, leaving you open to all kinds of risks. Although some sellers allow prospective bidders to visit the home in person before the auction date, this isn’t guaranteed. Therefore, if you successfully purchase a home at auction, you could end up stuck with a wide range of expensive repairs.   
• You may need cash. To register as a bidder, you may need to pay a cash deposit before the auction begins. This deposit will be refunded to you if you are unsuccessful. Beyond the initial deposit, some auctions only allow cash buyers, which means to participate, you must be able to afford the entire home purchase with cash. There are only a limited number of real estate auctions that allow buyers to finance their purchases with a mortgage or other loan. 

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The Pros and Cons of Selling a House at Auction

From a seller’s perspective, real estate auctions represent a unique opportunity to sell their home. However, just as buying a home at auction comes with pros and cons, so too does selling a house at auction. Keep reading to discover some of the main benefits and drawbacks of selling a house in a real estate auction. 

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Pros

• Sellers set the auction terms and conditions: As a seller, you will get a say in the terms and conditions that prospective buyers need to meet if they want to participate.  
• A home sale can happen fast: If speed is a priority, a house auction might be the way to go. After all, house auctions can take as little as 10 minutes or as long as an hour. However, even the longer end is far shorter than selling a home the traditional way.  
• The home is sold as is, without contingencies: Another pro of selling a house at auction is that most auction homes are sold as is, meaning the seller is not required to make any repairs or improvements to the home before the closing date. Similarly, buyers are unable to add conditions to the home sale, such as financing or home inspection contingencies. This gives sellers peace of mind knowing nothing is standing in the way of the home sale once the auction is over.  
• Sellers are more likely to get their asking price: Since buyers may not have an opportunity to inspect or appraise the home before the auction date, the seller is more likely to get their asking price. 
• You could sell your home before auction day. Another pro of selling a house at auction is that it could result in an early sale. For example, if a potential bidder visits your home before the auction and doesn’t want to take their chances on the auction date, they might submit an offer. If the offer is satisfactory, the seller could accept it and cancel the auction altogether.

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Cons

• A sale is not guaranteed: A home sale isn’t always guaranteed at a house auction. For example, it’s possible that no one bids on the property or the bidding does not meet the reserve bid and the sale falls through. Therefore, sellers must be prepared for the reality that the auction may not end in a successful home sale.  
• A smaller pool of buyers: Most house auctions have a smaller pool of buyers than traditional home sales. There are various reasons for this, such as buyers not understanding how home auctions work or not being willing to take on the risks of buying a home at auction (that is, no contingencies). A limited audience could translate to less competition and a reduced purchase price.  
• Your home could sell below asking: Another risk of selling a house at auction is that it could sell for less than you hoped. Keep in mind that in most cases, the winning bidder does not need to offer the asking price. They simply need to meet the reserve price. If there is little competition, the winning bid may still be below asking. 
• The auctioneer may have selling rights for a set period: One final drawback of selling a home at auction is that, depending on the auction house, they might have exclusive selling rights to your property for a predetermined period. This means that even if your home doesn’t sell at auction, you cannot contact another auctioneer or REALTOR® until the exclusivity period expires.