Auctions can be great fun, as well as places for genuine bargains. The key is to know how the auction process works and to take advantage of a bargain if it fits your plans.
Prior to attending an auction, potential buyers should try to find out as much as possible about specific properties they are interested in. While most real estate auctions allow prospective buyers some inspection rights, direct contact with the administrator of the auction is frequently needed to arrange personal inspections.
Know The Property
Be sure to check the features, location and condition of the property. Attempt to discern the current market value of the property by looking at sales of comparable properties in the same area. Compare properties with the same number of rooms, particularly bedrooms and bathrooms, but be sure to allow for price differences due to “extras”-swimming pools or decks, garages, etc. Arriving at an auction well prepared will help you determine your bid price and even help you decide whether to bid on a specific property at all.
A property is put up for sale through an auction format for any number of reasons – a foreclosure action, a tax deed application, a court-ordered sale, provisions in a contract, a divorce resolution, a provision to satisfy the needs of an estate, a dissolution of a partnership or trust or because the owner chooses the auction as a means to quickly dispose of the property.
Get Familiar With Auction Process
Real estate auctioneers employ a variety of auction formats and bidding procedures. Many factors play a part in determining which methods will be used. Following are some of the more common real estate auction formats and bidding procedures used today.
- An absolute auction is an auction in which the property is sold to the highest bidder, regardless of how low that bid might be. This type of real estate auction typically attracts the most bidders since the public knows that the property has to sell.
- A reserve auction also referred to as a minimum bid auction, sets a pre-determined minimum bid amount prior to the start of the auction.
- A subject to owner withdrawal auction allows the seller to bid on the property for himself or herself or to withdraw the property from the auction outright if he or she does not like the amount of money bid.
- A silent or sealed bid auction allows bids to be made in advance and submitted for review. No one knows what anyone else is bidding.
- In the case of a foreclosure or other court-ordered sale, state laws generally establish a period of time over which the property must be advertised prior to the sale. This serves several different goals. The most important is to give ample notice to draw prospective buyers. The other main reason for such announcement of the auction is to give all interested parties sufficient time to react to protect their interests. However, even with advance notice and advertising, it is rare for an auction to draw many prospective buyers.
Have a Talk….With Yourself
Once you understand how the auction works, you need to ask yourself: Is this for me? It can be fun to bid, but it can be costly. Never bid because you get caught up in the fever of the moment. Some auctions can be very intimidating. It’s a good idea to go to a few as a spectator, so you get used to the speed of the bidding and terminology used.
There will always be a degree of risk when buying a home at an auction, but with a little due diligence, potential homebuyers could save a lot of money buying in this manner.
Excerpted, in part, from The Real Estate Investor’s Answer Book by Jack Cummings, a McGraw-Hill publication.
Thanks for sharing your article about buying a property in an auction. I like that you talked about how you must pay attention to the house’s features, location, and condition because this will help you to make a decision about whether to bid for the house or not. My father is interested to buy a new property which he likes to convert into a rental house. It’s essential for him to find a property that will match his needs. Additionally, it’s better to be wise and knowledgeable about what you’ll be paying for. I’ll make sure to share your blog with him so he can find some tips.
Jeff, MY wife and I are thinking of buying a home via Auction but are very scared it could turn out to be a big mistake becasue were worried about properties that may have filed for Bankrupcy or court order sales, etc.. How do we find out that a property is free and clear of any liens etc..?
This is an excellent question! to many people go into things without researching it and find themselves holding the bag. Some web sites can take you only so far, the rest is up to you to do the leg work and research it yourself by going to the clerk of the court for that city, public records, city court house to see if any junctions or cial suites been filed and property liens from creditors. The bigest is Bankrupcy, you could be lookin all this stuff up and the auctions a week away, meanwhile paper work is in the making by the previuos owners. Then it comes time to bid, yeah you got it! or did you, yeah right in the ass becasuse of delayed progress fileing…..now it get ugly becasue you have to hire an attorney and get this mess all straightened out.. Do’nt by at AUCTIONS go with REO Forclosures, this way you now the Bank di there homework and you have someone to fall back on. Also there supposed to do repairs etc…called due-dilligance before putting on the market.