Foreclosure Auctions and Profitable Bidding Strategies
Posted on 20. Dec, 2010 by LuxSpaces in Real Estate 101
When buying foreclosures at auction, the banks may be motivated but market values will still factor into the final price.
Foreclosure auctions offer opportunities to reap huge profits upon resale, or to obtain an elegant new home for a fraction of its prior market value. Over the past few years, even luxury homes have been touched by the weak real estate market and hundreds if not thousands of foreclosure homes in the $2M and above range are up for foreclosure auction.
When buying foreclosures, the opening bid price is often incredibly tempting, but a low winning on foreclosure homes doesn’t necessarily indicate that your bidding strategy carried you to a profitable or wise investment.
Know the Comparable Market Value When Bidding on Foreclosure Auctions
Forget about the idea of getting value for nothing in a foreclosure auction. Fellow bidders and banks alike understand the local real estate market as well—or better—than you, especially the banks.
Banks may be motivated sellers of foreclosed homes, but bankers are not stupid. They employ and contract for excellent realtors who can pinpoint the market value of any foreclosure home. As a bidder, you need to have this fact is mind when establishing your minimum bid on given foreclosure home.
Market value factors in to your maximum bid in an even more marked way. Project the value of the home subsequent to any required repairs or cosmetic makeovers. Compute “what if” scenarios factoring in the home’s potential appreciation over the next 2 or 5 years. Set your maximum bid to ensure profits under most, if not all, conditions.
Banks understand that foreclosure auctions will net them less than the home’s previous value, and they know full well that the sales price will be factored down by repairs whose costs will be borne by the buyer.
Buying at Foreclosure Auctions May be Profitable, but it’s Not Free Money
Unlike what the infomercials indicate, it’s rare to buy a dollar for 20 cents. If you truly want to own this home, you will need to adjust your maximum bid accordingly. Be doubly sure that your max bid price allows you the budget to make improvements and repairs and still turn a profit if you intend to flip.
Few buyers complete all-cash transactions. However, the more you pay down at the outset, the greater your chances of placing the winning bid, as banks recoup more of their investment right away.
Buying foreclosures at auction has proven a profitable investment path, but one that cannot be completed without careful attention to budgets, comparable home values, unimproved land values, and the costs of cosmetic and structural upgrades. All of these will directly influence your minimum and maximum bids while the cash you bring to the table can tilt the odds of winning the auction in your favor.
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