How to buy a property at a foreclosure auction
Have you discovered a property that is about to be auctioned off? This could be the opportunity of a lifetime to make your dream of homeownership a reality – and, in the best-case scenario, even at a bargain price. Find out how such an auction works and what you need to keep in mind here.
Reasons for a foreclosure auction
A foreclosure auction occurs when property owners face financial difficulties and are no longer able to pay their mortgage interest to the bank. Naturally, the reasons for this are as varied as the individuals involved.
In such cases, banks first attempt to sell the property through regular means to recover the money. The reason is simple: The sale price is usually higher when it’s not a forced sale. Only when this option is deemed unsuccessful do they file for a lien enforcement, leading to a foreclosure auction of the property.
How does a foreclosure auction work?
You can find out which properties are up for auction through public announcements in official bulletins and on the websites of bankruptcy and debt enforcement offices. First, the property's value is estimated, and typically a minimum price is set. If you find a suitable property, you can either participate directly by submitting an offer or have someone you trust represent you.
Good to know: Banks typically only offer up to the amount that covers the previous owner’s debts. Therefore, your chances of acquiring a property at an attractive price are quite good. However, it’s important to set a maximum offer you're willing to pay and thoroughly prepare for the auction process.
Preparation is key: Things to keep in mind
Gather information
If you’re interested in a property, immediately request or obtain the sales brochure. This will provide you with key details such as:
- Auction conditions
- Plans
- Encumbrance record
- Price estimation
Take a look at the property’s land register entry for a more comprehensive understanding. It will inform you whether there are any restrictions on use or if there are any encumbrances tied to the property.
Visit the property
To avoid unpleasant surprises, there's no substitute for an in-person property inspection: For foreclosed properties, there’s no guarantee, and the right to claim defects is excluded. Consider bringing along an expert to the viewing – this way, you can spot potential weaknesses and better assess the market value of the property.
Check the affordability
Before placing a binding offer, you need to know which amount fits within your financial framework. Try out various scenarios using our free mortgage calculator, or get non-binding advice on different mortgage solutions.
Understand the auction process
No auction without a strategy: Before placing an offer, we recommend attending an auction as a guest. Observe the process and familiarize yourself with all the crucial details.
Once you place an offer, it becomes binding and legally enforceable. Withdrawing can be costly: If another auction has to be scheduled because of you, you'll be responsible for the organizational costs and potentially even the difference if the new highest offer is lower than yours.
The process begins with a presentation of the property and the associated auction terms. Then it’s time for action: You’ll have about 30 minutes to place your offer. Keep in mind that your offer must meet or exceed the minimum price.
The lucky winner of the auction will have to pay an immediate deposit (typically 10-20% of the estimated value). There are usually several payment options available: a bank guarantee, cash (up to a maximum of 100,000 CHF), or a prepayment. The specific options will be listed in the auction terms.
Additionally, you should arrange for insurance promptly, as the property is now officially yours, and you will usually receive the keys right away.
Within a specified time frame (typically 30 days), you must then pay the remaining balance.
Bidding process vs. foreclosure auction
A foreclosure auction is not a voluntary process – it is usually initiated by the bank. In contrast, a bidding process involves property owners selling their property through a closed auction. This is especially beneficial for high-demand properties, as the idea is for bidders to outbid each other and drive the sale price as high as possible.
It is not uncommon to receive a higher price in a bidding process than in a regular sale. The bidding process typically consists of two rounds and proceeds as follows:
- Properties sold through a bidding process can be found on online platforms such as immoscout24.ch, where they are labeled as such.
- First, a sealed, non-binding offer is submitted. Afterward, the highest bid from the first round is disclosed to the bidders.
- Then, if bidders wish to surpass the highest bid, they can submit a second bid—the highest bid will win the auction. Unlike in a foreclosure auction, parties can still withdraw their bids at this point.
Conclusion
Foreclosure auctions can be exciting and, in the best case, offer a real bargain. What's crucial is to approach each auction with a clear plan: never exceed your set maximum offer and always keep a cool head.
