With the increasing popularity of real estate auctions, we encourage potential buyers to do their homework prior to getting in the game. Auctions can be a fantastic way to get great deal if you know what you’re doing. Whether you are a Realtor®, an investor who has bought zillion of dollars in real estate or a first time home buyer, you still need to learn the rules and tricks. Here are some examples of how not to bid and buy at auction.
- Do not bid without inspecting the property prior to the auction. A little description in a brochure that you just picked up at the auction is not called due diligence. Remember, if you’re the winning bidder you’ll be signing a non-contingent contract. In other words the property is yours no matter if your financing didn’t come through or the place needs repair. You bought your property AS-IS. Get ready for the closing.
- Know the true value. Some auction brochures and ads can show the previously listed price. Well, that price could be the highest ever listed price, not necessarily the recent or most realistic one. Do your homework and go online. Many websites will provide you with recently closed listings of similar properties. Otherwise how are you supposed to know if you’re getting the deal of a lifetime?
- Plan, strategize and win. So you found the property you’re dying to get, now what? Think of it as a battle. You most likely will have opponents (other bidders) in the room. Create a strategy, define your maximum bid, and do not let your emotions take over. This is a business not a race. There could be a chance that the property bid exceeded the market value and you should take a pass. There is always a new opportunity down the road.
- Let others start the bidding. If no one bids it’s even better because the seller might be open to lower his reserve. I see people make offers lower than the reserve or minimum bid after the auction. Some sellers are determined to sell and may accept your offer.
- Go auction hunting. Instead of looking for properties at auction that are plastered all over the radio, TV and billboards, try to find auctioneers with a smaller marketing budget. That way you’ll avoid the crowds and might get a better deal. Believe or not, smaller local newspapers are a great source to find these hidden gem auctions.
- Avoid dual agency. Find your representation, it’s free. This one is very important. There are some auction companies that do not cooperate with Realtors®. In my opinion that is a huge disservice to the seller they’re representing because it limits the buying pool. Try to avoid these auctions because the auction Realtor® is representing the seller and even though dual agency (representing the buyer and seller in the same transaction) is legal in some states, your satisfaction as a buyer might not be their priority. Instead, use the Internet to find a Realtor® who knows auctions and who will exclusively represent you as buyer. This service costs you nothing, because your agent will get paid by the seller, and a real estate agent can be very resourceful with helping you find financing and helping you do the due diligence.
- Watch out for “dummy bidders” and auctioneers that “pull” bids from walls. Sometimes auctioneers do that to raise bids so they reach the reserve price. It’s unfortunate that it happens. I’ve witnessed sellers accepting contracts under their set reserve price. My advice: make sure you’re bidding against real people. Look around.
- Don’t forget about the buyer’s premium. Always read the auction terms and conditions. The amount of buyer’s premium should be listed there. Buyer’s premium is an additional fee on the top of the sales price that you’ll have to pay. Let’s say it is 5% of the winning sales price and you won a condo for $100,000. Do the math. 5% of $100K = $5K. Therefore, your total price will be $105K (the $100K winning sales price plus the $5K buyer’s premium)
Joanna Buniak – realestateauctions.com