Real estate auctions are fast, and they’re fun. No wonder that they’ve been on the upswing for years, with the National Association of Realtors reporting a 39.2% increase in residential real estate auctions in the five years from 2003 to 2008.
Want to join in the action? Start with a little basic education first. Here are five basic auction steps:
When an auction is advertised, the property will have a list of dates and times that you can tour it. Never buy anything sight unseen. If you really love the place, you can try a “pre-offer”—negotiating to buy on the spot before the property goes to auction.
You want to make sure that you’re buying a house without significant other debts on it—for that, you’ll need the help of a good attorney and possibly a title company. Since an auction is an auction is an auction, you’ll also want to follow LearnVest’s eBay advice and learn what the item is selling for elsewhere. If the auction advertises a $400,000 house for $300,000, but you can buy something just like it for $280,000, where’s the bargain? Conversely, beware of deal that are too good. Remember that a bargain that seems too good to be true probably is.
3. Learn The Lingo
Let’s say you want to buy a property at auction to avoid paying a real estate agent’s commission, check to make sure that you’re not paying a “buyer’s premium,” which is basically the same thing, but to the auction house! Another buzzword to know is “reserve price,” the price below which a property won’t sell. For example, if you bid $150,000 on a condo where the reserve price is $200,000, you haven’t won it.
4. Set Limits
Don’t want to overpay? Decide what a home is worth to you before the auction starts. If you know what your top number is, you won’t get swept up in the moment.
5. Line Up Your Financing
Auctions usually require you to “pay to play”—to plunk down a cashier’s check or bank check for a certain percentage of the purchase price before you can be approved to bid. You may also have to prove, before you win, that if you win you can handle the rest of the purchase price.
You do this by raising your hand, or possibly a paddle with a number on it, once you’ve registered. Remember not to go past your spending limit.
7. Wait For Approvals
Very few auctions are “absolute” auctions, where if you win the auction, you win the property. Much more likely, if you win the auction, you then have to get approvals to buy the property—sometimes from the bank that holds the mortgage, sometimes from the local court.
Tell us in the comments: Have you ever participated in an auction...for anything? What was your strategy? How did it turn out?