Real Estate Auctions – 5 Tips To Success

Real Estate AuctionsI recently attended by first real estate auction with a client.  They were interested in a house in a nice area and were hoping to get it at a good price.  We visited the house the weekend before.  The utilities were off so we couldn’t check any of the systems but we did have a chance to poke and prod.  My client brought a family member who did repair and handy work so they could get an idea of the cost of repairs.

Our plan was to go to the auction and try to get the house at a price so that once the repairs were done, it was still below market value.  The starting bid was $50,000 and I estimated the house to be worth $180,000-$190,000 in good condition after repairs.

When the time came, the bidding went fast and furious.  In matter of 45 seconds the house was at $100,000 and finally sold for $150,000 which was over my client’s price point.  We walked away without the house but more experienced.

Here are some of the things I learned:

1)    BE PREPARED

Make sure you read all of the documentation on the auction website.  For example, my client had to bring a certified check for $2500 plus a personal check to cover the balance due.

Also, some houses were sold with reserves meaning that even if you were the high bidder but did not meet the reserve, the seller had 15 days to decide if they wanted to sell it.  And, they were going to hold your money until the decided.

Always read the documents – twice!

2) BUDGET

Make sure that you have enough cash to handle the earnest money/down payment plus the repairs.  Some homes can be financed and others are “cash only’ meaning the buyer does not have a financing contingency to protect them.  Also, build in a “what if” line to your budget.  Since most homes are sold “as is” and can not be thoroughly inspected before the auction (typically the utilities are off so you can’t check the systems), make sure you have allocated money for the unknown items that may arise.

3) KNOW YOUR LIMIT

Auctions take on a carnival atmosphere.  There’s electricity in the room.  The auction is loud and fast paced.  It’s not hard to get caught up in the frenzy and go past your budgeted figure.  Bring someone with you (an agent is a good place to start) who is not emotionally attached to the outcome.  If the house you want has exceeded your price point, let it go.  Unless you’re an investor or have the finacial resources to absorb losses, once you exceed your number, walk away.

4) GET THERE EARLY

Pick up the brochure for the day and sit in the room for at least 30 minutes before your property comes up.  If your home is one the first ones, try to attend an another auction before that one.

By getting there early, you can get sense of the pace of things and how the auction is going to occur.  You can also see of there are any investors who are bidding up properties or buying in a certain area.  If your house is in one of these areas, be prepared to make go head to head with them.

5)    TYPE OF AUCTION

Know the type of auction you’re attending and what it means.

Absolute: The highest bidder wins the auction, regardless of price. The same as an auction without reserve.

With reserve: An unpublished price the seller has set for the property. It can be different than the minimum bid. The seller can accept or decline a winning bid within a specified amount of time after the auction.

Subject to lender approval: A lender, who either owns a foreclosure or who has financed a developer, must agree to sell the home for the amount of the winning bid.

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