Frequently Asked Questions about Buying Real Estate at Auction
Why should I consider buying real estate at auctions?
One factor is auctions have a deadline. That’s right, a deadline. You can save time, energy and money by considering auction properties. The auction deadline or date and time, let’s the buyer know the seller is motivated and ready to sell. All the negotiation is done while bidding in an open and transparent format. You don’t have to guess what other interested parties are willing to pay. The whole bidding process often takes just a few minutes for a single property or a few hours for multiple assets.
What are some other benefits of buying real estate at auction?
Auctions are often held with live bidding by the auctioneer so you can participate on site and watch other bidders. If you cannot attend the auction firm may offer online bidding and you can bid from your phone or mobile device. Some auctions feature multiple assets so you have the opportunity to buy more than one property at one auction event.
How can I avoid over paying at auction?
At an auction you know what the competing offers or bids are! If you become the high bidder you know you only paid one more increment than the previous bidder. Another tip is to study the property and that local market. Get as much data as you can find on what other similar properties are selling for. In some cases popular real estate search sites offer estimates of value. You may find that some tax or GIS sites list sales results. You may consider working with a real estate agent and let them advise you on what a fair price would be. It’s a good idea to do your homework in advance and determine you maximum price prior to attending the auction.
Does the seller have to sell if I am the high bidder?
The answer depends upon the type of auction you are attending. Many auctions today are conducted under what is called “Absolute Auction”. With an Absolute Auction the seller must sell to the highest bidder. Auctions can be conducted with “Reserve”. An auction with reserve gives the seller the opportunity of refusing the high bid. Many real estate auctions are conducted with reserve. These auctions may also be called auctions with seller’s confirmation. The terms and conditions of the auction will state the type of auction and the rules for that auction.
What are the buyer’s responsibilities when buying real estate at auction?
The buyer’s responsibilities will be similar to those in any real estate transaction. Examples are:
- Provide the auction company with a deposit
- Provide the auction company with you contact information
- Provide the auction company with your closing representative
- Provide details about your ability to close such as a bank letter of qualification
- Sign a real estate purchase agreement
- Sign a real estate agency and other disclosures
- Be prepared to close with cash quickly – in many cases not more than 30 days
- Communicate with the auction firm during the process
- Do not begin making repairs prior to closing
What can I do to educate myself about the auction process?
- Attend auctions as a guest – listen, observe, learn!
- Ask about what opportunities exist to inspect the assets prior to the auction
- Read the terms and conditions of auction sales
- Sign up to receive email notices or direct mail announcing auctions
- Read sample auction purchase contracts
- Talk to real estate investors that buy at auction and ask for advice
- Study the glossary of terms common in the real estate auction industry
- Make sure you understand pre-auction due diligence
- Make sure you understand that most real estate properties are sold “AS IS” with all defects
- Follow real estate auction companies that frequently sell real estate
- Visit with an auction professional and ask questions about the process
Now go and purchase your first property at auction!