Housing affordability is still high and especially for people of color. In the second half of 2022, the homeownership rates for white households was 75% compared to 45% for black households and 48% for Hispanic households. African-American families also tend to spend more of their money toward housing than other racial groups. They’re also denied more mortgages than other racial groups combined. Decades of redlining and urban gentrification play a part in the reduced opportunities for homeownership opportunities for people of color.
But there’s still hope because there are alternatives to traditional mortgages and one such option is public auctions. You can buy an affordable home at a local real estate auction. The homes that you’ll find at public auctions are generally foreclosed by lenders after the original homeowners failed to make payments. Homes from owners who didn’t pay their property taxes are also sold at auctions. These homes are sold by the local authorities instead of the lender. Here is how people of color can secure affordable homes through public auctions.
How To Find Public Auctions
You can find public auctions by contacting your local government or visiting their website for news of upcoming auctions. Another idea is to visit websites such as Auction.com or Foreclosure.com. Sometimes online listings are outdated or inaccurate so always confirm by calling your local government before you place a bid. In most cities, the sheriff’s office handles homes that are auctioned due to property taxes.
Another way to find foreclosures is to work with a real estate agent who specializes in or who is knowledgeable of public auctions. He can direct you to the latest foreclosure listings on the MLS. Many of the big banks also have inventories of foreclosed homes on their websites and they also partner with management companies to post these listings so those companies’ websites are helpful too.
Check For Liens or Claims Before Public Auctions
Before you attend a public auction or sign up for one online, it’s crucial to check if the property has liens or other claims against the property. This matters because when you buy a foreclosed home, you’ll be responsible for paying for the liens out of pocket. Sometimes the former owner or squatters may live on the property and you’ll need to evict them after buying the home.
Know The Different Types of Public Auctions
There are three types of public auctions you can attend to buy a foreclosed home. An absolute auction is where your current bid needs to be higher than the previous bidder to win the house. The highest bidder will win the auction and get the home. A minimum bid auction is when you bid on the lowest price that the seller will accept. A reserve auction is when you can only bid on a reserve price.
You Generally Can’t Inspect The House Before Buying
When you buy a home at a public auction, you generally can’t inspect the home before bidding. Tenants or current owners may still live in the house and it’s considered trespassing if you try to inspect the home while someone still lives there. However, you can drive by the place to get an idea of what the house looks like.
You’ll Need Cash At A Public Auction
Most mortgage lenders won’t offer you a loan on the day of the auction because they’ll need an appraisal, inspection, and proof that there are no liens on the house. You’ll also need cash on the day you win the bid or at least the next day. It’s wise to save up a few thousand dollars months before purchasing a house at a public auction.
The Home May Not Be Well-Maintained
Public auctions provide an affordable path to homeownership but there are drawbacks. Some foreclosed homes for sale may have signs of wear and tear and the previous owners may not have maintained their homes properly. Because these homes have extensive damage, you should budget for home renovation and repair costs in addition to the cost of the house.
Pros and Cons of Buying Foreclosed Homes
There are advantages and disadvantages of buying foreclosed homes. One advantage is that you can buy an affordable home and bypass the grueling process of obtaining a mortgage. If certain auctions have few participants, this is less competition for the house you want to buy. It also doesn’t take a long time to buy a foreclosed home. If you want to buy an investment property, auction sales can help you find a good deal and earn rental income right away.
A drawback is that you won’t be able to inspect it before the auction happens. You may also discover liens and other claims that you’ll need to pay for after the purchase. The home may not be in the best condition and you may not always be familiar with the legalities of this kind of purchase as a new buyer.
As housing affordability becomes more difficult, it’s good to know that there are alternatives that can help families secure a home. Public auctions are one of these alternatives but they also come with risks. Do your diligence before you buy a foreclosed home.
