How to Buy a House at an Auction Without Cash

The traditional way to buy a house involves searching property listings and working with a real estate agent. But you can also buy a house at an auction. Real estate auctions can benefit both buyers and sellers. Still, many people think it’s not an option if they don’t have liquid assets to purchase properties outright. Here’s more about real estate auctions and how you can participate even if you don’t have cash at your disposal.

How Buying a House at an Auction Works

Most homes go up for auction for two reasons—either the owner defaulted on their mortgage and ended up in foreclosure, or the owner didn’t pay property taxes, so their home was seized. Some housing auctions also happen because the seller wants a fast, cost-effective alternative to the often drawn-out process of selling a house on the market.

When deciding how much to bid, consider the value of similar homes selling in the area. Then, leave room for any necessary repairs and other related costs, such as title insurance, closing costs, auction fees, bank interest and penalties, attorney fees, sale carrying fees, and property preparation fees. Don’t let your emotions convince you to bid higher than the wise purchase threshold.

Pros and Cons of Buying a House at an Auction

Pros:

• You can expand your options beyond the homes listed on the market.
• You might snag a great house at a tremendous bargain.
• You face less competition at an auction than buying a house in the traditional way.

Cons:

• Auctions are riskier than buying property through the usual means.
• Auctions attract a different pool of buyers, meaning you’ll be up against experienced investors with lots of cash.
• There is no home inspection, and houses are sold as-is, making it possible to overbid on a derelict property.

At Dakil Auctioneers, Inc., we strive to limit surprises on auction day. That’s why we hold open houses for all our properties to allow prospective buyers to see what they’re bidding on. This differs from many auction houses that don’t provide any legal way to view the interior in person before the bidding starts.

Payment Options When Buying a House at an Auction

Buying an auctioned property usually requires you to have cash on hand. In fact, you may have to submit a refundable deposit of 5% or 10% just to register and participate in the auction. (At Dakil, we require a 5% down payment via cash or cashier’s check.) Typically, the person who bids the highest amount must immediately pay for the property in full.

Because of this, bidders at real estate auctions are often practiced investors who have the cash to buy a house upfront. However, certain auction houses do allow financed purchases, including Dakil. You simply need to secure financing ahead of time.

Be aware that conventional bank financing is not usually a viable method to purchase an auctioned house. Most mortgage lenders won’t finance fixer-uppers, and it’s unlikely that your application will be processed before the auction closes. You may have the option to secure a conventional mortgage a few months from now, but you’ll need a different form of financing initially.

Here are your options for buying a house at an auction without cash:

• Owner financing is an agreement between the buyer and the seller. The arrangement allows the buyer to make small monthly payments over an extended period.
• Delayed financing is when you buy the house upfront and immediately refinance it to take the equity back out, which you can then use to repay any loans you took out to fund the initial purchase.
• A line of credit functions similarly to a credit card, but without the plastic. Lines of credit may be secured or unsecured, which affects the loan amount and interest rate you may qualify for.
• A personal loan from a traditional bank or other lender is similar to a regular mortgage, but it’s unsecured, so the interest rate may be higher.
• A hard cash loan is a short-term, high-interest loan suitable for property flippers who fix up the house, resell it quickly, and pocket the profits after repaying the loan.
• A private money loan is an alternative financing method that involves borrowing cash from friends, family, or peer-to-peer lending sites.

Bid in a Real Estate Auction in Oklahoma

Dakil is a premier auction house operating in the Oklahoma City metro area. If you’re eager to try buying a property at an auction, we invite you to attend our in-person and online real estate auctions held up to once a month. Check our upcoming auctions page and for-sale real estate page to stay in the know. You can also contact us at (405) 751-6179 for more information about selling your home at an auction.