Foreclosure homes are those that the lender seizes when the homeowner fails to pay the loan to the bank. When a homeowner buys a house and takes out a mortgage, they sign a contract with a lien clause. This lien allows the lender to take control of the property when mortgage payments are not made. These properties go on sale or auction for anyone to buy. Here are certain aspects of foreclosure homes.

Foreclosure homes auction
Different types of auctions can be organized for the home.

• Absolute auction
  In this type of auction, any highest bidder can win the house, even if the highest bid is $1. Since there is no minimum price, this kind of auction attracts the most buyers. All the sales are final, and the seller cannot back out if the bid is too low, like $1.
• Minimum bid auction
  There is a minimum bid amount in this type of auction. The bid is published in advance for the buyers to see and come prepared accordingly. This also filters out many buyers who know they cannot bid above the set bid. Usually, the minimum bid is the balance that is owed on the mortgage. All the sales at this auction are final.
• Reserve auction
  In this type of auction, the seller has the right to simply reject auction bids if they do not match the number he has made up his mind for. The seller does not have to share the minimum bid amount and hopes that one of the buyers comes close to the amount.

How much to bid?
Learning certain factors on auctions and bidding can help you buy great homes and pay less than the market price.

If a 3-bedroom house is sold for $250,000 with the assumption that you may have to spend $50,000 on repairs and fixtures and so on. If you buy the house for $200,000 and sell it for $250,000, you know you are going to break even. Similarly, you must consider these estimates when bidding for a house.

Also, consider your requirement. Are you investing in the house, or will you move in with your family? You will have to make your needs clear as you can decide your bids on these factors. This will help you make the right bid for the house. Investors will probably not bid too much because of market risk and other factors. Eventually, they want to make a profit, so they also have to factor in short-term real estate market risk.

Things to remember when buying foreclosure homes

• Cash payment only
  Most auctions are strict with their rule regarding the payment for the bid. And the rule involves that you pay in cash or cashier’s check. Buying a foreclosure home may not work out for you if you do not have cash in hand.
• Sold as is
  The homes are sold as is, that is, without any renovations/fixtures. You will not be able to do a home inspection, too, and trespassing on the property is illegal. You can only see the house from the outside and make your bids accordingly.

It is best to go through all the pros and cons of buying a foreclosed home before you get involved in the bidding process.