Foreclosure auction vs. using a realtor

Ginger Dean

October 2, 2013

By: Ginger Dean, Home Finance Specialist

In: Finance and Legal

If you open up your local newspaper to the classified ads, you'll probably see several advertisements for foreclosure auctions. Unfortunately, more and more people are losing their homes because they can't afford to make the mortgage payments. However, sometimes one man's misfortune is another man's treasure.

Foreclosure auctions are an especially popular investment among entrepreneurs in the real estate business who want to flip homes for a profit. It's also a growing trend among people buying a second home (like a vacation home, for instance).

However, buying a home at a foreclosure auction isn't a guaranteed good investment. While there are several advantages to it, if you are spending your days bidding on other people's homes I have just one piece of advice - Buyer, beware.

Take a look at several pros and cons below if you're looking into buying at a foreclosure auction.

Why you should buy a home at a foreclosure auction

The price is right. The main advantage of buying a home at a foreclosure auction is the price. It's usually a lot cheaper than what you would pay if the house was officially listed for sale on the market. By the time a home is in foreclosure, the bank just wants to get as much of their investment back as they can, and more often than not this means selling the home via foreclosure auction.

Cash rules. Buying a home at auction is an all-cash process. The bidder doesn't need to get approved for a mortgage or deal with all the hassle that goes along with mortgage applications. The deposit is made in cash and the balance is due in the same within 15-30 days. If you have the cash available, foreclosures at auction could be a great option for you.

Advantages of using a realtor to buy a home

A realtor provides protection. When you use a realtor to buy a home, you have a certain amount of protection. When you come across terms like "earnest money deposits" and look at the rules governing that within a contract, you may wind up scratching your head, but your realtor will know exactly what to do. Your realtor also has an ethical duty to act in your best interest when you are buying a home. With that in mind, it's important to hire your own realtor and not just use the same one as the seller. The seller's realtor has the seller's best interest at heart because they are earning a commission on the sale price.

You don't need to read the fine print. It's always a good idea to read the fine print, but the advantage of using a realtor to buy a home is that they will explain the entire contract to you before you sign anything. Having someone on your side who is adept at spotting language and clauses that won't benefit you provides enormous peace-of-mind you just won't get going through the sale yourself.

Would you buy a home via auction or use a realtor? There's no winning side when it comes to "to buy at foreclosure or not to buy at foreclosure auction." It depends on your goals and on the purpose behind the transaction. Just make sure you've done a lot of research before you make your final decision.

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