There are so many avenues for purchasing real estate these days, and auctions have become a growing trend since our real estate markets have become a little stagnant in some parts of the United States. If you have decided that you want to try your hand at purchasing real estate at an auction, here are some tips:
Hire a competent real estate agent who will perform your comparables so that you know the approximate value of the home you will be bidding on.
- If the auction is being conducted at the property you may want to bring an inspector to inspect the property prior to the auction; if the auction is online, contact the listing agent for a date and time that the property will be made available for inspections prior to the auction.
- Make any necessary deposits with the auction company.
- If this is going to be a financed deal, make sure the preliminary financing has been initiated.
- Research to determine the flood zone, and if there are any tax liens on the property (find out who will be responsible for outstanding taxes, HOA dues, etc).
- Typically the seller conveys the clear title to the buyer (which does not necessarily mean that there aren’t any issues with the property. There may be open permits, unrecorded violations, etc., these issues do not affect the title to the property). If you are concerned about these matters, you would need to have a tax & lien search performed by a company that performs municipal lien searches.
- Remember that the amount that you bid does not necessarily include closing costs, auction services fee or Buyer’s Premium which could range from $3,000 to 5% of the bid amount.
- Know your absolute price limit factoring the fees, and do not go above that no matter how compelled you may feel during the bidding process. Fear of losing the bid may compel you to go over your limit. Conquer that fear by adhearing to your price limit.
- There are 3 types of auctions: minimum bid, reserve and absolute auctions. You need to know which type of auction you are attending.
- Minimum bid auctions start at an established price. The winner is the person bidding the minimum price or above. Again know your limit and abide by it.
- Reserve auctions have a set, undisclosed price that the seller wants. Sometimes there may be dummy bids before the reserve amount is reached. The auctioneer will announce once the reserve amount has been reached. This is a good time to start bidding if the bidding war has subsided. At the end of the auction, the seller has the right to accept or reject the winning bid. So it’s not over until the “fat lady sings.”
- Absolute auctions usually have no minimum bid. The winner is the highest bidder.
- Get to the auction location early so that you can register and get a bidder’s number (make sure the bidder brings TWO forms of ID).
- Get a catalog if one is provided; it will provide you with information on the property and placing bids. Review it.
- Review the auction’s common terms and conditions, which the auctioneer will usually recite at the beginning of the auction.
- Do not be the first to bid on the desired property.
- Do not get into a bidding war if several people are bidding on the desired property, especially if the reserve amount has not been met. Do not get emotional. Wait until the bidding war is cooling down (i.e. the other bidders seem unsure about making their bids and there seems to be a hesitation between bids, which usually means they are near the top of their price limit). As long as the bid is within your price limit begin to bid.
- If you are the winning bidder, the sale is subject to the seller or court approval. Buyers are not allowed possession of the property until the transaction has closed and all funds have been received and the transaction settled.
- Once the property is yours, the first thing you should do is re-key the lock.