Buying at Auction is Fun, Easy and Profitable
Buying Real Estate at Auction 101
(185, 185, 185 now 190 will you bid 190?)
- Buying real estate at Public Auction is fun, fair and easy. While some potential buyers may not be familiar with the process, it is open, public and transparent. It puts all potential buyers on exactly the same level, bidding on the same property, based upon the same terms. The Auction method is quick, efficient and fair.
- One of the differences in the Auction process versus a conventional listing is that all potential buyers must complete their due diligence BEFORE executing the contract. This means BEFORE the Auction. In a conventional listing, a potential buyer typically finds a property they are interested in and enters into a contract with the seller. The buyer then has a period to perform his or her inspections of the property, have surveys checked, investigate insurance and arrange financing. If the buyer is not satisfied with something about the property or cannot arrange suitable financing, he or she can then back out of the contract.
- The Auction process reverses some of these items. An approved “Contract to Buy and Sell Real Estate” is used with all contingencies removed. The seller will provide a good and clear general warranty deed to the property. The contract and a commitment to issue title insurance will be available at the previews for potential buyers to inspect. The contract will state that all taxes and utilities will be pro-rated to the day of closing. The title insurance and closing costs (which are minimal) are split between the buyer and seller. There are only two items in the contract to be determined on Auction day, the buyer or buyers and the sales price.
- The seller will complete a property disclosure form that will be available to all potential buyers. All potential buyers must make any inspections they desire BEFORE the Auction. This is why we schedule preview periods. We also will work with any potential buyer to allow her or him to conduct any survey, inspection or appraisal he or she may desire, at their cost. The seller wants every potential buyer to have as much information as he or she desires about this property. It is the potential buyer’s responsibility to satisfy him or herself as to all things that affect the value of this property. This puts all the potential buyers on exactly the same playing field. They will all be bidding on the same property, based upon exactly the same contract.
- Many people ask, “Why is there a deposit that is non-refundable”? The seller and the brokerage firm go to a lot of expense in preparing for and marketing the property to sell at Auction. The seller wants to be sure that when a high bidder is determined at the Auction, and a contract agreed to, that that high bidder will close the sale in thirty days or less. The deposit is a tool the seller uses to make sure the terms of the contract are met. This also pre-qualifies all bidders to a certain extent.
- The sale contract will require a closing for cash within thirty days of the Auction. This does not mean that a potential buyer cannot obtain a conventional mortgage. It just means that all potential buyers must have their “ducks in a row” prior to the Auction. Get pre-qualified with a lender. Have a good idea how much your lender will lend on the property you intend to purchase. Be aware that the difference between the amount you can borrow and the final contract price will have to come from you. Many people who purchase property at Auction easily obtain mortgages and financing. Just keep in mind that thirty days from the Auction, you will have to have the entire amount to close the deal or you will lose your deposit.
- Most sellers choose to sell real estate utilizing the standard 10% Buyer’s Premium. The Buyer’s Premium is a tool that Auctioneers and Sellers use to help defray the cost of the marketing and Auction. With the Buyer’s Premium, ten percent (10%) is added to the high bid price at the Auction to form the contract price. If the high bid at the Auction is $200,000, the Buyer’s Premium will be $20,000 for a total contract price of $220,000. If you only want to pay $200,000 then stop bidding at $180,000. This will result in a contract price of $198,000 saving you $2,000.
- Who can bid? Anyone can bid. All we require is the deposit and a photo ID. You then register for a bidder number and agree to the terms and conditions of the Auction. Our registration clerk will take all of your information, help you with the forms and accept your deposit check. If you are the winner, at the conclusion of the Auction, you will be required to sign the “Contract to Buy and Sell Real Estate” immediately. If you are not the winning bidder, you will return to our clerk and she will return your deposit check to you.
- How does the bidding work? We conduct live, open outcry Auctions with a real, live Auctioneer. Yes, he can talk fast and yes, you will be able to understand him. Most all of the bidders will attend the live Auction. Sometimes we also have pre-qualified bidders bidding by proxy, on the telephone or live online. If this is your first time at a Public Auction, it may be somewhat intimidating to you. Do not let it be! We are here to help you. The Auctioneer is the person who will be “calling” the bids. “Ring people” assist him. These ring people are on the floor and can answer your questions and relay your bids to the Auctioneer.Prior to the time of the Auction, our Broker will be available to answer all your questions. Please get all your questions resolved before the Auction. Once the Auction starts, things move quickly. When the time to sell this property arrives, the Broker will make some announcements. We record the entire Auction for the protection of all involved. After the Broker has completed the announcements, the Auctioneer will open the Auction.Many people are afraid they will buy a property by scratching their nose. This never happens. The Auctioneer and ring people only accept intentionally placed bids. This is why many times you will hear the Auctioneer ask, “Was that a bid?” The Auctioneer will start the Auction by asking for a number, let us say $200,000. If you want to bid that price then raise your bidder number or signal to a ring person. If the Auctioneer does not have a bidder at $200,000, he will ask for less money until someone opens the bidding. Once there is an opening bid, the Auction is on! This is when the process speeds up. Be prepared to make your best bid but also know where you want to stop. Once the bidding process has started, many properties are sold in less than ONE MINUTE. You have to remember, there will only be one winner when the Auction is completed.
- For how much will the property sell? This is the most asked question we face when conducting a real estate Auction. We never know the answer. In fact, we often have a contest where people who attend the previews may enter their opinion of the sale price of the property for a chance to win $100.00. We could have three different appraisers appraise any given property and they would all come up with a different opinion of its value. The bidders will determine the sale price of the property. It is the ultimate in our free market society. The Auction process is used to determine the value of everything from pork bellies to treasury bills and Microsoft stock. A properly marketed real estate Auction determines the value of a given property at that particular point in time. The high bidder will leave the Auction knowing he or she paid only one bid more than the next highest bidder bid. The Auction method is quick, efficient and fair. Buying real estate at Auction is fun, fair and easy!
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