Buying an Arizona House at Auction: Common Misconceptions Demystified

Given Arizona’s difficult housing market, many are looking for a way to afford their dream of homeownership on a limited budget. Though the average Arizonan makes a bit above the national average, the median home value in the Grand Canyon State is a whopping $435,000, making it seem impossible to finance a property without destroying the family budget.

Many houses at auction are available throughout the state, providing a much-needed option for those who may not be able to secure a full-price property even with the help of FHA loans. However, misconceptions abound about this unique way to enter the housing market, so it’s important to arm yourself with facts regarding the benefits and drawbacks of buying a house at auction. 

Is It Risky to Buy a House at Auction?

Buying a home at auction can be a potential liability, depending on the exact property. Many homes are foreclosed on due to delinquent payments; it would then be your responsibility to pay these off before your home is free and clear. You can’t usually finance these liens with a loan, so you should expect to have money set aside to handle these potential liabilities. However, you will generally have full disclosure of financial debts before purchasing the property. 

Some auction sites may not be entirely forthcoming about major issues with the home, such as vermin infestations or water damage issues; this can lead to expensive repairs, sometimes just as expensive as buying a home at full price. However, you can reduce this risk by looking at properties listed with the Department of Housing and Urban Development, which are generally quite thorough with their listings and fully disclose problems that buyers may face.

Are Houses Bought at Auction Always in Disrepair?

No, they are not always in disrepair. While some homes are auctioned off with the intention that the new buyer will remove and replace the old building with a new one, some are auctioned because the homeowner has faced significant debts and can no longer afford the home. These houses may or may not have serious structural issues, but often, the issue is purely financial for the previous owners. As previously mentioned, you will be responsible for paying off any liens against the home because these will be transferred to you. 

Can You Finance a House at Auction With a Loan?

This depends on the exact home and the setup of the auction. Some will want all the cash up front, while others will allow you to finance the rest of the purchase with a mortgage. If you do find an auction company that allows you to use home loans in Arizona, you’ll want to get preapproved ahead of time and provide this to the auction company when you place your bid.

Conventional, FHA, USDA, and VA loans can all be used to purchase foreclosed properties; in fact, the HUD, VA, and USDA all have sites that let you look at foreclosed properties for sale in your area, and their listings are generally thorough. 

You should know that you will always be required to put down earnest money; this is a requirement for Arizona home purchases, whether bought through a realtor or at an auction. Some auctions require a very small earnest money deposit of $1,000, but others may have higher expectations. You will also usually have to pay a buyer’s premium and a commission to the auction company that sells you the property.

Are “Dollar Homes” a Real Thing?

It’s tempting to believe that you can buy a home for a dollar, but this is generally not the case. “Dollar homes” are so named because the bidding will start at a dollar, but the actual final sale will be much higher, sometimes almost as much as buying a home from a realtor. You also need to factor in the earnest money deposit, the buyer premium, the commission, and any repairs that will need to be made before moving in. Liens and debts can raise the purchase price even higher in many cases.

The Bottom Line on Auctioned Houses in Arizona

While auctioned homes can seem attractive at first, you need to understand the legal and financial ramifications of homes sold at auction. It’s more common for developers to purchase an auction home that they will later sell at a profit, as they generally have access to greater funds and loans than the average consumer. 

However, if you’re cautious and fully investigate all the particulars of this home - including hunting for any debts associated with the property - you can buy a beautiful home in Arizona at a lower price than would be available through a realtor. It’s a great option for those with a knack for home repair who can pour their heart and soul into making their Southwestern dream a reality.