How to buy houses at an auction?

by Alex Musk

Do you dream of owning a house, but think the prices are too high? Have you considered looking for homes at auction? These can cost 40% less than a new home and still manage to have specific advantages in housing loans for homes at auction.

Surely you’ve seen an auction (even if it was in a movie) and wondered how it would be possible for some goods to be sold at such an affordable price. In fact, the houses are put up for auction because the former owners failed to pay the entity in question and, consequently, defaulted and had to deliver the property to that entity.

In this way, the houses at auction end up being sold at a bidding price well below the average value practiced by the market. For those interested in purchasing houses at auction, we explain everything you should know.

Who sells houses at auction?

The sale of houses at auction can be carried out by several entities.

Firstly, financial institutions have several assets seized because customers defaulted on mortgage payments and, as a consequence, were withdrawn from them. In this way, banks end up having several properties for sale.

When they are unable to sell these dwellings, banking institutions put them up for auction, through a private company, in order to dispose of the properties they have in their possession. In these situations, banks even offer special financing conditions that can reach 100% of the value of the house or a more attractive spread. 

Finance is another entity that holds houses at auction. When taxpayers are unable to pay their debts to the Tax Authorities, the Finances pledge the properties and subsequently hold auctions. These can take three different modalities: online, closed letter proposal, and private negotiation.

Social Security also has properties for sale in its possession. Between two and three times a year, this public entity sells houses at auction through a public tender. In this, base values ​​are defined for the sale and interested parties present proposals of equal or greater value.

Municipal councils also hold municipal real estate auctions. These auctions are held at public auction and allow the purchase of housing at lower prices.

Finally, the Order of Solicitors and Enforcement Agents is also another entity that has several auction houses. The e-auctions platform sells pledged goods via electronic auction. Interested parties must submit their proposal on the website using a digital certificate from the Citizen Card or digital mobile key.

How are auctioned properties held?

Before deciding to purchase a property at auction, you must choose the location, typology, accesses, and other relevant aspects. Then, it is important to look for the house that fits your needs in several auction houses.

The interested party must subsequently register on the platform on which the chosen house is being auctioned. You will need your identification document (Identity Card and Taxpayer Card or Citizen Card), to deposit a deposit (the amount of which varies according to the auctioneer) and to sign a declaration of acceptance.

If you do not acquire any of the pledged assets, the security deposit is returned or, if you do, it is deducted from the down payment on the housing.

It must then, during the auction, bid the amount that it considers fair and, if it wins the bid, it must proceed with the Promise Purchase and Sale Agreement with the seller.

At this point, you must then proceed with the payment of the deposit, which varies according to what is established by the owner.

Financing for auction houses

To know if it really pays, or not, to buy houses at auction, it is important to analyze all the factors – each house is different.

If the value of a new house, located in the same area and with characteristics similar to the one that is pledged, is equal to or less than the total cost of the property that you can acquire at auction (considering taxes, possible renovations, and other costs that you may have), then it probably doesn’t pay off.

On the other hand, if the house you want is up for auction at a really affordable price and, with all the associated costs, the discount is competitive, don’t hesitate to buy the house of your dreams at a much lower price.

Finally, it is very important to understand if you have the capacity to pay for a house, even if it is a lower value. First, understand what your effort rate is and know that it shouldn’t be too high.

Then analyze your savings. As with the purchase of a new home, houses at auction require an initial down payment which corresponds to 10% of the value of the property. If you don’t have a large enough amount to give as an initial down payment, you can opt for a personal credit so you can pay after the bidding.

For the purchase of houses at auction, you should also consider a home loan. Although you are not sure which property you will be able to buy (as it is an auction and it is not always possible to acquire the desired house), you will certainly know the average value of the houses that you like (taking into account the location, typology, and other relevant factors). In this way, you can search for the best offer and choose to request a pre-approval of the credit.

Precautions to be taken when purchasing foreclosed properties

Buying houses at auction can, in fact, lead to a good deal, but there are few precautions to be taken. First of all, before buying a pawned property, you should check that it does not have a tenant with preemptive rights or someone who is inhabiting the house and has a usufruct right.

Attention must also be paid to the right of redemption. If there are heirs of the owner of a property, they can buy it at the price at which it was sold at auction.

It is also advisable to check that the house you may want to purchase at a bank auction, for example, is not pledged due to schedule 1 tax debts. You should consult the Certificate of Content for this purpose, which, among other things, indicates whether the property in question has associated charges, such as mortgages or liens.

It is extremely important that you consult this document before purchasing homes at auction. You can do it at a Land Registry Office or on the Land Registry Online website. Both options come at a cost, but better safe than sorry. And you should do this a few days before bidding or signing the contract.

It is also important to consider the market value of the property, to see if the price at which it is being sold is fair. If the sale value is relatively lower or even equal to the market, it may not be worth buying the house at auction.

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