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If you’re looking for a new house, you may have heard that you can get a great deal at an auction. That’s possible in some cases, but real estate auctions also carry a lot of risks.

What Types of Properties Are Sold at Auction?
Some houses sold at auction went through foreclosure, while others have liens for unpaid taxes. A house in foreclosure may be auctioned off by the lender, while one with overdue taxes may be sold by the tax authority.

Houses are often put up for auction “as is.” A house may have been neglected or vandalized, and it’s often not possible to view a house and have it inspected before bidding. Buying a house without knowing its condition is a huge gamble.

On the other hand, a house in foreclosure may be in good shape, and you may be able to get a larger house with more amenities than you would otherwise be able to afford. You also might be able to purchase a unit in a new development at a low price.

Potential Problems
If you buy a house with a tax lien, you will become responsible for the lien. The auction company may not guarantee that the property has a clear title, but you can pay for a title search to help you decide whether to bid and, if so, how much.

Sometimes the former owner is still in the house or squatters have occupied it. Evicting them can be time-consuming, expensive and difficult.

How do Property Auctions Work?
Auctions are generally advertised online. A pre-determined amount of time is allowed for bidding, either in person or online. At the end of that time, the highest bidder gets the house.

Before you bid on a property, make sure you understand the terms. In most cases, you’ll have to submit proof of identity and of financial means to purchase a house before the auction. You might have to authorize the auction company to place a hold on your credit card or provide a cashier’s check. If you don’t win the bid, the hold will be released or the check won’t be cashed.

In most cases, buyers must pay in cash. That can limit the number of private buyers but attract real estate investors with a lot of money at their disposal. Some auction houses allow buyers to finance purchases. They often have preferred lenders, but you may be able to get a better rate from a different company. Auction companies may tack on fees that can significantly raise the total cost.

Proceed With Caution
Buying a house at auction is risky. You might get a desirable property at a great price, or you might get a money pit. Before you bid on a house, learn as much as possible about the property and the auction procedures. If you can’t view a house or have it inspected to accurately assess its condition, consider looking for a different property to avoid making an expensive mistake.