If a bank forecloses on a home it is entitle to collect what is owed to them plus any fees associated with the foreclosure. At a foreclosure auction the bank will start the bidding on a property at the amount that is owed to them. Therefore, if a homeowner defaults on their loan and owes the bank $145,000, the opening bid at the auction will be $145,000.
If you are planning to buy a home at a foreclosure auction it is possible to get a very good deal. Look for a home that has a decent amount of equity in it. If you are at an auction it is possible to bid just $1 over the opening bid and wind up getting a home at a huge discount. For example, if you find a home in foreclosure worth $250,000 and the homeowner owes the bank $125,000, it is possible to go to the auction and bid $125,001 and have the winning bid. Hence, you just got a $250,000 property for $125,001.
There are times where you could be the only one who shows up at an auction. This happens when there are a number of auctions in one day nearby. Most investors will go where the most auctions are taking pace. Therefore, if you are the only one to show up at an auction you can purchase a property for just $1 over the opening bid.
Once you get a property at a good price you can fix it up and sell it for a profit or immediately sell it to an investor. You will likely make more money selling to a homebuyer than an investor. When you sell to an investor you have not made any improvements to the property so the investor will expect a discount. Selling to an investor can yield you a good return on your investment without sinking allot of your own money into the property.
To be successful making money at foreclosure auctions you must have a plan to review the houses going into foreclosure every week. You need to do your due diligence and drive by the properties to find the ones that will be good deals.
The best properties to buy at auction are the ones that are vacant. If the homeowner is still in the property when you buy the home at auction you have to deal with evicting the owners or renters. Make sure you are familiar with the eviction laws in your state before you bid on properties that are still occupied by the owner. Simply call the local sheriff's department and they can explain to you the eviction process for your area. The eviction process differs by state and in some areas it can take up to six months to evict someone. If you purchase a home that is still occupied it does not always mean you will have to evict the owner. Sometimes the owners are ready to move they are just waiting for the new owner, to tell them when they need to be out of the property.
Not everyone who shows up at an auction has checked the condition of the house or checked if it is vacant. Knowing this information will allow you to bid higher than some of the other investors at the auction.