Making an offer and buying a home or a piece of property that is traditionally listed on the market is not your only option today. Auctions have gained a tremendous amount of attention in the real estate sector and are now gaining momentum as a method to purchase property.
Experienced real estate investors have leveraged auctions during the acquisition phase and the industry is seeing more and more novice buyers entering the auction scene. Buying property at auction requires some basic skill sets and there can be a learning curve to both fully understand the auction process, as well as thoroughly educating the bidder about the property they are attempting to purchase.
Properties being sold in an auction format can afford a prudent bidder/buyer an opportunity to own a property at a good investment price. However, purchasing a property at auction is not without risk. Let’s discuss the steps and practices that experienced bidders practice at an auction to minimize the risk of purchasing property at auction.
There are a variety of reasons why property is offered to the public at auction. Examples will vary by property type and location, however, some scenarios may include foreclosure property, estate or trust sales, court ordered sales due to death or disputes, unique or hard to value properties. Another example would be rural property (ie. farms, ranches, etc.) as the auction marketing method has become a primary sales strategy for farmers and ranchers in various regions of the country.
Regardless of the reason a property is being offered at auction, the following steps will help inform and protect a bidder while mitigating common risks associated with purchasing at auction.
Step 1. (Finding an Auction) Identify a property you are interested in that is being offered at auction. You can search online for professional auction companies in your desired area. Many professional auction companies will promote the industry and professional affiliation with the national and/or state auctioneers associations which support a code of ethics and practices designed to protect consumers during the auction process. Working with these type of auction companies offers the consumer a heightened level of security and often a more transparent purchasing opportunity.
Step 2. (Preparing to Bid) Request the property information from the auction company and personally inspect the property. Many professional auction firms prepare a Property Information Packet (PIP) which includes pertinent information regarding the property. Most properties being offered at auction will have an opportunity for physical inspection. The burden of performing due diligence prior to bidding at auction most often rests on the buyer, however, do not be afraid to ask for any information you need from the auction company to become a well-informed bidder/buyer at auction. Once you are identified as a winning bidder at auction, you are expected to purchase the property according to the terms and conditions of sale, so preparation is extremely important.
Step 3. (Setting a Limit) Make sure to research area sales prices for similar properties that fit into a similar category (size, location, type, etc.). Sometimes this can be a difficult process, however, online marketplaces are making estimations of value somewhat simpler. You can look at online real estate sites to see what like/kind property is being offered for and then factor in that they may sell slightly lower than the asking price. You can also check with the county tax assessor (or collector) and ask for the “assessed value” of the property. In many cases, this will be significantly lower than the actual sales price, but it is a starting point. The biggest advice here is to find an estimated value that you are comfortable with and can afford to pay and stick to it as you enter the auction bidding process.
Step 4. (Participating in the Auction) Depending on whether the auction is being conducted onsite at the property (Live Auction) or conducted on the internet (Online Auction) will regulate much of the requirements to become a bidder in the event. For example, many live auctions require onsite registration the day of the auction and ask bidders to present a photo ID to register to bid. Some auctions may also ask for a bidding deposit at the time of registration, which is refundable if you are not the winning bidder. Online Auctions, however, will normally require you to create a user account within the online bidding platform. This verifies that you are the person that registered for the bidding account and are placing the bids on your own behalf. In either scenario, make sure to thoroughly read and understand the “Terms and Conditions” prior to placing any bids. The terms and conditions will outline how the property is being offered, what is required of the winning bidder, any additional amounts that may be added to the purchase price (ie. buyers premium) and closing information.
Step 5. (Winning the Bid) Losing an auction is easy. You just do nothing. Winning the auction, however, is an agreement to fulfill the purchasing process. When the real estate auction is over and you are identified as the winning bidder, you will be required to sign a purchase contract and to present a certain amount of non-refundable earnest money with the contract to purchase the property. A typical closing time period once the contract has been signed is 30 days. During this time, possession of the property is normally not given to the winning bidder until the property closes and has been fully paid for. This is a brief description of the chain of events that auction bidders will navigate when engaging with an auction company to purchase property at auction. Regardless whether it is a live auction or an online auction, remember to prepare yourself as much as possible prior to bidding and then be diligent in your bidding to set and adhere to reasonable limits. It is easy to get caught up in the excitement and over-extend your financial ability if you’re not careful.
These are just a few things to look for when preparing and participating in an auction. Although there are many things to learn, real estate auctions can be a great way to purchase a home or investment property at a fair price.
United Country Real Estate offers the largest and only organization of auctioneers and real estate professionals in the nation. With United Country Auction Services, you get a leading, fully integrated network of conventional and auction real estate professionals. For more information, visit www.UCAuctionServices.com.