How to Buy a House at Auction

There are two basic types of home auctions: a tax auction to repay delinquent taxes and bank auctions on foreclosed homes. So yes, those television infomercials of people buying houses for less than a thousand dollars are true. I even bought a house for $1000 at a bank foreclosure auction once and I'll get to that later. Let's talk about tax auctions first, that's where you will get the best value.

Almost every county tax-assessor collector holds a monthly tax auction to sell property with delinquent taxes. The bidding usually starts at $1000 to $10,000 even for homes valued at more than $100,000. The auctions are announced in the local newspaper in the classified ads in legal announcements. Notices of the properties for auction are also posted on a bulletin board inside county court houses and also often posted on county tax administration websites. Tax auctions are held on the same day every month. It is held on the second Tuesday each month in my hometown of Durham, North Carolina, but the day may vary from county to county and state to state. Some counties may hold only one annual tax auction such as Cook County, Illinois.

The Durham County NC property auction website is typical of many county tax auction sites and allows you to link from a list of properties to the individual property with a compete legal description as well as a picture. County websites often advertise the properties for sale two weeks prior to the auction and maintain a list of the winning bids for two weeks after the auction.

Durham County has 13 properties scheduled for auction on July 8, 2008. I check the website list each month and every month there are 10 to 25 properties up for auction.

Beware of the pictures as they are often old and may not represent the true condition of the property. Take some time and drive by the house to make sure it has not been vandalized. Often you will not be able to make an inspection of the interior as you would with houses for sale on the real estate market and will have to settle for peeping in the windows and crawl space if possible so take a flashlight along. Check the crawl space if you can because thieves will steal plumbing pipes and electrical wires for the copper. Tax auction properties are often vacant and sometimes boarded up.

One of the properties coming up for tax sale in Durham is 2041 Buffalo Way. The house was built in 2003 and has three bedrooms and two full baths. The property has a tax value of $114,845. The bidding will start at $4,438.00. Photo for 2041 Buffalo Way.

What will the house sell for? It all depends on how many people show up at the auction or know how to place an "upset bid." The auctions in Durham County are held in the lobby or the County Courthouse. Other counties may hold their auction outside on the court house steps. Usually 30 to 50 people show up for the auction and most will have a specific property in mind. A rule of thumb is the fewer the people at the auction, the lower the prices at the auction. The owner of the property can always pay the taxes and have the property removed from the auction list so on the day of the auction not all the property on the list may still be up for auction.

On the day of the auction, an official representing the county will tell you what properties are still up for auction and explain the local rules, and then the bidding will begin. The bidding will usually increase in increments of $100. Tax auction bidding will usually stop well before the assessed tax value of the home is reached but I have seen the bidding for some homes come within 10% to 20% of market value but often the homes can be had for 50% of tax value or less. I suggest you attend a tax auction to get the feel of bidding in your area before going in for a buy. Usually it will take less than an hour to auction ten to fifteen properties.

If you are the winning bidder at your auction, you will have to be prepared to put down $750 cash or 10% of the bid price, whichever is greater, so secure your bid. This deposit is due within a couple of hours of the end of the auction, if not immediately. After the auction, there is a ten day waiting period for "upset bids" to come in and replace your bid as the highest bid. Upset bids must be placed in increments that are 5% higher than the previous bid while a bid at the live auction can be just a dollar higher. If there are no upset bids during the ten day waiting period, you win the auction and then must pay cash for the property or forfeit your deposit. The cash is usually due within a three to four week period after the close of the upset period.

If you end up losing the property to an upset bid, your deposit is usually refunded within days and a check will be mailed to you or you can pick up the refund in person. You can also upset the bid of the upset bid.

To place an upset bid, you simply go down to the tax assessor-collectors office and inform them you wish to put an upset bid on your chosen of property and you put down $750 or 10% of the bid price and then you must wait ten days to see if the original bidder or some else comes back with a higher bid. You will need to know the property address or property parcel number or property tax ID number when placing an upset bid.

Each time the bid is upset, a new ten day waiting period begins. This process can go on for months, if there is a lot of interest in the property which can drive the price up and up. I once put a bid of $45,000 on a quadroplex valued at $135,000, but after months of upset bids the price had climbed to more than $90,000 and my partner and I dropped out of the bidding at $65,000.

I have a rule that I will not pay more than 50-cents on the dollar for a house at auction based on the tax value of the property, which is hopefully less than the market value and I am usually looking to pay 30-cents on the dollar or less. That rule allows me enough of a margin than I can make repairs to the house and still sell it for less than market value to the next buyer, making it a good deal for both of us.

I am currently bidding on 402 Clay, Durham, NC is a 1770 square foot, four bedroom home with three and a half bathrooms built in 1910. The house has a tax value of $66,536. I tried to buy this house for about $10,850 by upsetting the previous high bid of $10,200 from June 10 2008 Durham county tax auction. The new upset bid is $11,600. I must now go back and bid $12,350 to buy this property by July 7^th, if I want to try to maintain control of the property.

I plan on making a new bid because I am not going to do anything to the house and have a buyer who is offering $22,000 for the house. The prospective buyer previously bought the house at 407 Canal from me so I have confidence the deal will go through. Photo 402 Clay

Putting "tax auction" and the name of the county where you live in Google or another search engine will usually find a link to your local county tax website where an additional link to a list of properties to be auctioned can be found. Here are a few examples:

Bronx County New York holds its New York City tax lien auction auctions annually and makes it's the properties up for sale available on its website. Properties being auction in New York can be downloaded: Download Manhattan List (43k), Download Bronx List (110k, Download Brooklyn List (248k), Download Queens List (187k), Download Staten Island List (67k)

In California, The County of Los Angeles Treasurer and Tax Collector sells properties located in Los Angeles County for which property taxes have not been paid for 3 years or more. The Public Auctions are open to the public. Los Angeles County tax auction showed sales of homes in Los Angeles for less than $2000.

Fulton County , Georgia, where Atlanta is located, holds tax sales are held on the first Tuesday of each month, between the hours of 10 am and 4 pm on the steps of the Fulton County Courthouse. A courtesy listing of properties up for sale is available in the Fulton County office and may be viewed or downloaded from its website or found in the Friday edition of the Fulton Daily Report, www.dailyreportonline.com, for a four-week period prior to the Tuesday Sale date.

Cook County property owners whose delinquent taxes were bought at this Illinois' Cook County Annual Tax Sale have two years to pay back the tax buyers in a process overseen by the courts, according to Cook County Treasurer Maria Pappas

Now let's talk about bank property auctions.

Bank Foreclosure Auctions

Bank auctions are held by attorneys representing a lien holder and are held Monday through Friday at all times of the day on local courthouse steps. Notices of these auctions are advertised in the local newspapers and posted on bulletin boards in your local county courthouse. If only one property is to be auctioned, no one may even show up to bid. If no one else shows up, you only need to bid one dollar more than the minimum bid which is usually the amount the bank is owed. These one property auctions are often over in less than 5-minutes, so if you plan to go to the courthouse to bid on one of these, be early and find the auctioneer before it starts.

Often many foreclosures are handled by just a few law firms in each state that specialize in foreclosures. The starting bid on these houses is usually the amount owed to the lender. If you go to a bank auction and there are no other bidders there, you only need to bid one dollar more than the lender. The lending agency almost never comes back with an upset bid. If there are no bidders, the lender bids the amount of the loan and is the winning bid. Bank auctions are subject to the ten day bid upset rule in most jurisdictions as are tax auctions. However to place an upset bid on a bank auction, you will usually need to see Clerk of the Superior Court in the local county and ask about Special Proceedings Division, where you will find files, open to public access, listing all the bank foreclosure auctions. The file will usually list the current owner, the name of the lender, the attorney handling the auction and the minimum bid.

Once you know the name of the attorney or law firm, you can sometimes link to its website and find properties that are up for bid. For instance, the firm Shapiro and Ingle handles bank foreclosures in almost every North Carolina County and they make available on their website Upcoming Sales as well as Completed Sales. The site is typical of what can be seen at attorney websites that offered foreclosed property at auction.

My $1000 House

In July 2007, I bought 407 Canal St (407 Canal photo) in Durham, a duplex converted to a four bedroom, two bathroom house for one thousand dollars at a bank auction. I bought it sight unseen except for the picture from the tax office. There were seven houses up for auction that had been previously owned by one person. He had defaulted on more than almost a million dollars worth of loans. Only about ten people showed up for the auction and no one bid against me for the house. Canal Street was an absolute auction. That means there is no minimum price. This is a rarity among bank auctions because they usually want at least the amount of their loan back.

The house was vandalized and condemned by the city, that's why it was so cheap. The city was threatening the bank with fines if they did not fix it up. All the wiring and plumbing from underneath the house had been stolen, seven windows were broken, outlets and light fixtures were missing and there were two walls without any sheetrock. I estimated the house needed about $10,000 worth of repairs. I advertised the house for sale in the newspaper for $15,000 and ended up selling it for $12,000. I ended up spending $2000 to clean the house and yard and haul the debris to the dump as well as for some plumbing repairs. I made about $9000 of the deal and spent less than 80 hours working on the house and its sale. The house has a tax value of $45,000 after the repairs by the new owner so he ended up with house for less than 50% of tax value. It was a good deal for both of us, but I should have least driven by the house.

My partner Jim Meyer and I bought 1501 Ridgeway in Durham for $26,000 at a bank auction by placing an upset bid with the Durham County Clerk of the Superior Court in September 2007. The three bedroom one bath house is on two lots and has a tax value of $69,587.The house is currently for sale for $70,000 and is bringing in a rental income of $750 a month. This house was in good condition from the outside and looked pretty much like its picture when I drove by. The walls and hardwood floor that I could see from the windows before I bought the house looked good. However what I could not see was the kitchen and bathroom floors had rotted out. New joists and flooring had to be installed in both rooms as well as new kitchen and bathroom cabinetry including the sinks and bathtub. All the plumbing pipes from under the house were also replaced. A new roof was also put on the house as well as a new electrical panel box and new outlets were installed. Total repairs were about $20,000, bringing the total cost to $46,000, a little higher than I wanted to pay for everything, but still well below market value. The real estate market is slow and the house is getting few looks so I am thankful that it is rented. Photo 1501 Ridgeway

Here are some examples of some recent bank auctions in North Carolina. In Transylvania County on 6/18/2008 in Special Case #: 08SP48, Kelly Joe Whitmire and Wife Sherry Mcneely Whitmire bought 387 Breedlove Rd, in Lake Toxaway, North Carolina for $265,341.00 that was one dollar more than the minimum bid of $265,340.00. The median price of homes in the area is $436,000. The Special case number is number given to property that is auctioned off in civil proceeding and can be used in lieu of a property address or parcel ID to identify properties up an upset bid following the auction.

In Wake County, NC on 5/27/2008 in Special Case #: 08SP1602, Li-Or Lan bought 2428 Dorety Pl, Raleigh, NC for $94,500.00. The starting bid was $18,441.56. The home has an estimated market value of $155,000, according to zillow.com

In Wake County on 6/18/2008 (Special Case: 08SP1767) Mark Wooten bought 5140 Linksland Dr, in Holly Springs, NC for $211,050.00. The starting bid was $107,628.68. The house has a market value of $351,000 according to zillow.com

Here are some examples of bank auctions where the bank ended up with the property. In Durham on 6/19/2008 in Special Case: 08SP819, 5 Conder Pl, Durham, NC 27703 had a minimum bid requirement of $59,929.00 from MidFirst Bank and was retained by the bank for that price. The property has a tax value of $81,186.00

In Durham on 6/24/2008 in Special Case: 08SP767, 7 Sandy Bluff Ct, Durham, NC required a minimum bid of $151,143.00 from MidFirst Bank $151,143.00 and was retained by the bank for that price. The property has a tax value $176,043.00.

In Durham on 6/24/2008 in Special Case: 08SP864, 2904 Weeping St, Durham, NC was retained by Beneficial Mortgage for the minimum bid of $81,989.22. The property has a tax value $94,312.00.

What these six cases above demonstrate, is the public is willing to buy foreclosed property if they can be a deal 30% or below the market value, but there is little interest when the minimum bid and market value are within 10 to 25% of each other.

Zillow.com is an interesting website to use when looking at buying property at auction. Zillow.com will allow you to compare homes prices in an area. That helps me decide how much I am willing to bid for a piece of property.

Another thing you should consider when buying a property at auction is whether you should do a title search. If you are the winner of a bank or tax auction, you will be given a quit claim deed to the property by the seller, which should give you clear title to the property. If you hire an attorney to do a title search for you, it will cost about $300 and you can be sure there are no liens or other claims against the property. My older and wiser partner Jim recommends hiring the lawyer but you can learn to search county records on your own to determine if there are any encumbrances lurking such as second mortgage liens or contractor liens.

Both HUD and the Veteran's Administration maintain together a property auction sites but require you to work with a realtor if you wish to buy one of their properties. Those properties can be previewed at this HUD site.

In all I have bought two apartment buildings with four units each, a one bedroom condominium and a two bedroom condominium, and two houses at tax and bank auctions and all have been profitable deals.

Now that you know how it can be done, you can now go buy a house for less than the cost of a car. Of course as a friend of mine once said, "you can sleep in your car, but you can't drive your living room." If you don't live in the house, you can always rent it out. If you buy it cheap enough you will see nice returns on your money for very little work. Buying a house or building at auction is a good cheap way to begin building your own real estate empire.

If you are interested in a vacation home, search those counties near the shore, in the mountains or where ever it is you like to vacation. You will find those properties are also auctioned at prices far below the market value.