Looking to buy a new home? Residential real estate auctions are the fastest growing segment of the live auction industry and are a viable alternative to the conventional negotiated method of buying a home. Although a common perception is that all auction properties are foreclosures and that all buyers are investors; however, that is not true. Many sellers are turning to the auction method to sell their non-distressed, non-foreclosure homes, and many home buyers are choosing the auction method to purchase their own homes. The auction method truly determines market value—the price at which a willing seller and willing buyer strike a deal.
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If you are interested in residential auctions, they are often advertised in local newspapers, either in the real estate section or in the auction section if there is one. There are also websites such as AuctionZip and the National Auctioneers Association that can be searched by location for upcoming auctions. Additionally, there are many auction companies with their own websites that list upcoming auctions. Typically, there will be open houses prior to the auction when the home can be inspected. Information is available about the features of the home, taxes, fees, and other home related issues as well as information about the auction process itself. An informed buyer will use all of the information available to make a determination if this is the right house for him or her. Often, a prospective buyer can bring in a home inspector to make sure that there are no major problems with the property.
There are various types of auctions. One common type is the Absolute Auction. At an Absolute Auction, the property is sold to the highest bidder with no minimum and no reserve. Another type is a Reserve Auction. In a Reserve Auction, the seller sets a minimum price that he or she will accept for the property. This reserve amount may be published or unpublished. At the auction, once the bidding is at or above the reserve price, the property is then sold to the highest bidder. If the high bid is below the reserve price, the seller may or may not choose to accept the lower price. Typically, a Buyer’s Premium is added to the gavel price. This is usually between five and ten percent. If the gavel price is $300,000 and the Buyer’s Premium is eight percent, the Contract Price will be $324,000.
One important thing to know if you are buying a home at auction is that the home is sold As Is, Where Is. This means that there are no contingencies in an auction. Once the auctioneer says “Sold!” the home is yours, regardless of any problems that you may discover later. For this reason, it’s important to do your due diligence. Typically, the winner bidder puts down a deposit on the property at the time of the auction. If the buyer does not follow through or changes his or her mind, the deposit is lost.
In an auction, closing usually takes place 30 to 60 days after the auction. Since the home is sold with no contingencies, before you place your bid, make sure that you will be able to obtain the financing necessary to close on the property if you are the winning bidder. If you are unable to close in the allotted timeframe, you may lose your initial deposit.
Buying a home at auction can be an exhilarating experience, but it can be intimidating for the first timer. Make sure you do your research, try to attend an auction before bidding on the home of your dreams, and enjoy the process!
By William Z. Fox, Chairman and CEO, Fox Residential Auctions & Karen S. Brown, Executive Assistant, Fox Residential Auctions