A friend of mine who’s new to real estate investing asked me about buying a house at a real estate auction in PA. Laura had seen on Reddit that said it was an inexpensive way to buy investment property but was worried about getting in over her head. It’s not something she’d ever done before so she didn’t know about the details of buying an auction house, or even if it was a good idea.
I’ve bought, renovated and sold countless houses during my career as a professional real estate investor, so I’m never surprised when friends come to me these sorts of concerns. And, as usual, I gave Laura my professional opinion: Yes, it’s possible to pick up an investment house from an auction and see a good return on it. But, while there are definitely good reasons for looking toward auctions for deals, there’s quite a few potential pitfalls. Just as I did with Laura, let’s take a look at some of the real estate auctions in PA and what you should expect.
Should You Buy From a Real Estate Auction in PA?
Pennsylvania is what’s called a “judicial foreclosure state.” This means that when a homeowner falls behind on the mortgage payments, the lender must file a lawsuit to foreclose on the house. The judge will most likely rule that a home must be sold to the highest bidder before a credit union or bank can include it within their inventory and sell it for potentially more money. This is good news for auction buyers because it ensures opportunities to buy at potentially rock-bottom prices.
But, no matter which auction you attend, remember that the houses up for bid can be a risky proposition at best. Often, they have sat empty and unkempt for a long time—sometimes years. And, you are not likely to always be available to visit the property before buying it. That means you probably won’t be able to get a property inspection. This will make it harder for you to know what you’re getting into and calculate your renovation costs.
But, if you have the fortitude for risk, here are some sheriff’s sales across the state where you may find good deals. All three are held in highly-populated counties, so you should have plenty of opportunities for real estate investing in Pennsylvania to choose from.
Allegheny County Sheriff’s Sale
You might be able to find a good deal at the Allegheny County Courthouse. That’s where the Allegheny County Sheriff’s Sale is held monthly. Houses to be auctioned are advertised in the Post Gazette, the Pittsburgh Legal Journal, and on their Facebook and Twitter accounts. Browsing through the listings, it looks like you can get properties for as cheap as $2,000 bucks—and, that’s pretty enticing. If you bid on a property, be prepared to pay a 10% deposit and be aware that if you win you must pay the full balance by the following Friday morning.
But, if you don’t pay the full amount by that Friday morning, or don’t want to pay it because you’ve learned that the property is too distressed to rehab cost-effectively, you will lose your deposit. Unfortunately, the Sheriff’s office won’t help you do any due diligence before you bid. You’ll need to do your own property research to find out if there are any undisclosed outstanding liens and whether the title is clear. And, don’t expect to be able to take a look at the property either. So unless you already have established means of rehabbing all sorts of problems in a home or plenty of operating capital to toss around, you may want to avoid this auction entirely.
Lehigh County Sheriff’s Sale
Compared to the Allegheny County proceedings, the Lehigh County Sheriff Sale’s terms are a little more lenient. If you win an auction you’ll need to pay a 10% deposit right away plus the sheriff’s poundage, which is posted on their website, so you can calculate the cost before you bid. And, you’ll have a full 30 days to come up with the rest of the balance. That’s plenty of time to get a hard money loan if you need it.
However, in Lehigh County, it’s buyer beware. Anyone who objects to the sale may file with the Sheriff, even after you close on the auction deal. It’s also possible that the house you buy comes with a mortgage or other liens that you will become responsible for. If you buy a house that has even more unpaid debt than you accounted for and needs extensive renovations, your margins are going to suffer. So, while you may get a good auction price, buying from the Lehigh County Sheriff’s Sale is risky at best.
Philadelphia Sheriff’s Sale
In Philadelphia County, you have two options. The Philadelphia’s Sheriff Sale is a tax foreclosure auction that happens up to four times a month and once every quarter. A bank foreclosure auction is held monthly. The Sheriff’s Office website lists the properties it has for sale, including the assessed value and opening bid amounts for each home. You must place your bid in an increment of $100 and pay a 10% deposit up front. And, as in Lehigh County, the rest of the balance is due within 30 days.
However, Philadelphia County gives homeowners plenty of opportunities to get their homes back. If they are still living at the property at the time of the auction, they get a Right of Redemption period on tax sales. This period is additional time wherein they can pay off their debts and reclaim their property. If this happens, the homeowner will also need to pay your purchase price within six months. But, you will not be paid for any renovation or holding costs you’ve incurred.
This makes buying at a Philadelphia County auction a dicey proposition at best. The only way to avoid losing your renovation money to the redeemed homeowner is to hold off on making repairs for the first six months. This is a significant setback when your goal is to renovate a house and have it on the market quickly. If you’re looking to make returns on a timely schedule, a Philadelphia County home auction may not be the best option for you.
If reading all about real estate auctions in PA has made you uneasy, you’re not alone. Laura’s eyes were wide open after I finished talking about it, too. That’s why I’ve steered clear of auctions for years now; the risks are just not worth it. And, I have a better way to find PA real estate investment deals anyway. I already told Laura, but I’ll let you in on my not-so-secret strategy, too.
The Right Mentorship Can Make Auction Purchases Less Risky
By becoming an independently owned and operated HomeVestors® franchisee I’ve been far more successful at getting qualified leads than when I tried to go at it alone early on in my career. I get enough qualified leads through the nationally-known and trusted “We Buy Ugly Houses®” marketing campaign that I don’t have any need to even consider standing on the courthouse steps with all the other investors vying for a risky deal. Instead, distressed homeowners who need to sell their house fast contact me. And, I make them a fair deal that helps them avoid foreclosure, too. It’s less stress and financial risk for both of us.
If you’d rather be buying houses than hoping an auction deal doesn’t fall through, give HomeVestors a call today.
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