Real estate investors who aren’t afraid of a little competition may want to explore sheriff’s sales as a means of securing their next great deal. Sheriff’s sale properties usually sell for significantly less than their market value, making them a lucrative investment strategy. Before diving into your first sheriff sale, research and prepare well. This way, you can mitigate the risks and increase your chances of a decent profit.
This guide will teach you everything you need to know about investing in sheriff’s sales. You’ll be confident going into your first auction with a clear understanding of this property sale type.
What Is a Sheriff’s Sale?
A sheriff’s sale refers to foreclosed or repossessed property sales held by the local sheriff’s department. Properties may end up at a sheriff’s sale due to the owner’s failure to pay their mortgage, taxes, liens or other debts associated with the home. Consequently, the proceeds from the sheriff’s sale go to anyone who lost money on the property, such as banks, lenders and tax collectors.
Local law enforcement authorities sell these properties in an auction style, with bids driving up the sale price. The highest bidder gains ownership of the property. Many sheriff’s sales happen in person — either at the sheriff’s office or the county courthouse — while others occur online. All sheriff’s sales are open to the public, meaning anyone can attend and bid on properties, but you usually need proof of funds to participate.
What Types of Properties Are Auctioned at Sheriff’s Sales?
Investors can find several types of real estate opportunities at sheriff’s sales. It’s common to see residential properties like single-family homes, condos, townhouses and smaller multifamily dwellings. They sometimes auction off commercial properties or larger multifamily buildings as well.
Properties go up for auction at a sheriff’s sale once the foreclosure process is complete. Foreclosure can be lengthy, as the homeowner receives multiple notices and chances to repay the money they owe. However, sheriff’s sales can happen quickly after foreclosure since the bank or lender needs to recoup their losses as soon as possible.
How Can You Find Out About a Sheriff’s Sale?
The timing and frequency of sheriff’s sales differ by location, so you’ll need to contact your local sheriff’s office for more details. Some locales only conduct sheriff’s sales every few months, while others hold weekly auctions. You can find property details for upcoming sheriff’s sales online via the sheriff’s department website or in the local newspaper. Law enforcement will advertise the sale well in advance to give the owner time to make amends. This usually offers investors plenty of time to prepare for the sale.
Each property listing includes an identification number — either a sheriff’s, docket or case number — along with an address and legal description. It may also list the plaintiff, defendant and the “upset price”. An upset price is the minimum sale price they’ll accept for a successful auction. The price can be higher or lower than the “judgment amount,” which is an amount the court determines the defendant owes.
Benefits of Investing in Sheriff’s Sales
People invest in sheriff’s sale properties for various reasons, but the main one is their high profit potential. Most properties on auction at a sheriff’s sale sell for a discounted amount, giving investors the opportunity for a large return on investment from flipping. You’ll have access to various property types to expand your investment portfolio. There is also typically less competition than in other property auctions.
Buying properties from a sheriff’s sale does come with risks, though. The property on auction could be in poor condition and need costly repairs. It could have occupants that you’ll have to evict. You may also be responsible for paying any liens or back taxes that come with the property title. Doing your research before buying one of these properties will help reduce the risks.
What Can You Do to Prepare for a Sheriff’s Sale?
Prior to a sheriff’s sale, an investor should focus on two things — research and funding. Learn more about what’s involved in each step below.
1. Gather Information
Because properties at a sheriff’s sale are sold “as-is,” investors need to do as much due diligence as possible before bidding. Unfortunately, it’s usually impossible to get inside and inspect the home beforehand because of tenancy and trespassing laws. It’s still in your best interest to at least drive by the address and do a “curbside” inspection. You can peek from the public sidewalk without stepping foot on private property.
In addition, you’ll want to run a title search before auction day. Look for any liens on the property that will transfer with ownership. They might include anything from federal IRS liens to water bill liens. The auction price may already account for any liens, but not always. Note any open permits since you’ll likely have to pay to close them, too. Title information is public knowledge, so you can track it down yourself or get assistance from a title agent or real estate attorney.
2. Obtain Necessary Funds
How much money should you bring to an auction? The answer varies based on the auction’s particular requirements. Before attending the sale, familiarize yourself with the amounts necessary and the accepted payment methods. Some jurisdictions will require payment in full at the time of sale. Others only need a certain percentage as a down payment, along with proof of loan pre-approval. In some locations, it’s possible to obtain a Federal Housing Administration (FHA) loan for a sheriff’s sale property.
Sheriff’s departments will also have their own requirements for the transfer of funds. They generally don’t permit personal checks, so investors often bring cashier’s checks to the sale. It’s best to get several checks in incremental amounts because the final price is unknown due to the bidding process.
For investors, running profitability numbers up front is essential. It will let you know what price will be too high to make a profit. Our cash-on-cash return guide is a good starting place for more information on investment profitability calculations.
What Is the Sheriff’s Sale Process?
The process of a sheriff’s sale may look slightly different based on local requirements, but in general, buyers can expect the following steps.
1. Advertisement
The sheriff’s department will list the property as an upcoming sheriff’s sale. This means the court has ruled against the defendant and turned the property over to local law enforcement for auction. Now is the time to do your due diligence on the property and set a maximum budget for bidding.
2. Bidding
On the posted date and at the specified place, the auction begins. Since the order of an in-person auction is not typically publicized, you’ll want to arrive early to not miss out on the bidding for your intended property. Here are a few tips for bidding successfully at a property auction:
- Prepare yourself for the bidding process by attending other sales as an observer.
- Have your finances ready before the auction.
- Do your research on the property’s value.
- Wait until the bidding moves along before you place your first bid to gauge the competition.
3. Winning
The sales price increases as interested parties make their bids. A lender or lender’s representative sometimes takes part in the bid to buy back the property to recoup more funds or drive up the price. The property auction closes when the predetermined bid time is over or the highest bids are in.
4. Fund Transfer
If you are the successful bidder, you’ll make the necessary payment and receive proof of purchase. This often comes in the form of a “sheriff’s deed,” which shows your temporary claim to the property before the official closing. Alternatively, some jurisdictions write a receipt of sale for properties paid in full, which you can use to obtain the deed from the courthouse.
What Happens After the Sheriff’s Sale?
The closing process after a sheriff’s sale also varies by location. Some sheriff’s sales will require closing within 30 days, while others take longer or shorter. The auctioneer will give you specific closing instructions at the time of sale, but it’s in your best interest to research the terms before the auction.
In some states, the closing time corresponds with a redemption period offered to previous owners. This statutory redemption period allows the defendant one of two options to get their property back, depending on local laws:
- Pay the judgment amount: Some states require full payment of the judgment amount within the redemption period. It’s unlikely that the owner has access to this money, so closing should proceed as usual.
- Match the highest bid: Other states create more of a “matching” structure, where the defendant can pay the winning bid amount along with any auction fees to receive their property back. Since the sales price at auction may be much less than their original debt, the previous owner may exercise their right of redemption. If they do, the buyer loses claim to the property even though they won the auction.
Assuming all goes well and the previous owner doesn’t exercise their right to redemption, you can close on the property and receive the official deed. At this point, you own the property and can take possession of it to make repairs as necessary.
Is a Sheriff’s Sale Right for You?
Some investors do well at sheriff’s sales or other auctions. If you’re good under pressure and okay with some uncertainty, a sheriff’s sale may be a great opportunity to find a nice deal.
If the variables of a sheriff’s sale seem daunting, you may want to consider distressed properties or pocket listings as an alternative strategy. At New Western, investors gain access to our private, online real estate investment marketplace with a curated inventory of investment properties. If you’re interested in a great deal without the hassle, let us show you some properties that might fit your portfolio.
Simply submit a form on our website to get started today. One of our license agents will contact you for a no-obligation call to discuss your investment goals.
