If you’ve been into real estate investing for a while, there’s a good chance you’ve heard quite a few myths about real estate auctions. In fact, many investors miss out on fantastic opportunities because of what they’ve heard from others. Below, you can learn more about some of the myths associated with real estate auctions and whether it’s worth your time to make the trip.
Not All Auctioned Homes and Properties are in Bad Condition
Of all the myths you might hear surrounding real estate auctions, this is the most common, but it couldn’t be further from the truth. Though many of the properties sold at auction are foreclosures, and some certainly do need more than a little TLC, it’s also possible to find exceptional properties – including luxury homes and commercial buildings – with owners that just want a sale. Before deciding to forego an auction, or before deciding to travel several hundred miles to attend one, do some research about the property. You might just find a diamond in the rough.
They Aren’t Always “Cash Only, Pay in Full” Sales
Another common myth that keeps many investors from attending real estate auctions is the cash-only, pay-in-full myth. You do not have to pay the full value of the property in cash and in full right away unless it is a county or judicial sale. In reality, you will need to have anywhere from 10% to 20% of the potential purchase price on hand, and it will need to be cash, certified check, or even a cashier’s check, but you do not have to have the full amount up front. Keep in mind, though, that if you win a property at auction and you do not pay the full auction price before the end of the closing period (30 to 45 days on average), you will forfeit your deposit.
Properties Sold at Auction Sell for Less
Many people – including homeowners and investors alike – passionately believe that homes sold in auction go for much less than market price in most situations. This is simply not true, either. In many cases, properties sold at auction sell for right at market value, and many even sell for more. Like any other real estate investment, it’s important to do your research and perhaps even meet with a real estate agent in the area. If the property is considered extremely desirable, then you may find yourself paying even more than market value. If the property isn’t as desirable, then it will likely sell for less.
You Can’t Get the Winning Bid Unless You’re an Experienced Investor
If you’re a new or inexperienced real estate investor, you may feel a bit like a fish out of water at a real estate auction. In fact, you may have heard that unless you are highly experienced with auctions, there’s practically zero chance you will get the winning bid. The truth is that the highest bid wins, so it’s up to you to decide how much you are willing to spend on the property being auctioned off, and then bid accordingly. The best thing to do, even before you’re ready to actually buy a property at auction, is to attend several auctions. Then, when you’re ready, you’ll feel more comfortable.
Real estate auctions can be intimidating for new investors, and even some experienced investors steer clear due to myths they may have heard from friends and family. Understanding the difference between fact and myth can help you make better investment decisions for yourself, regardless of your experience level.