Auction isn’t only for foreclosures or tax sales, though it is used frequently to move this type of property. Getting more popular are auctions by regular owners who just want to move their home with a bit less hassle, and possibly save a little money as well. Why do some sellers take the auction route? First, this method of sale brings the buyers together into one place at one time. It is very focused on a single purpose, the transfer of ownership of real estate.
Second, the fact that buyers are present, together and in competition, can mean competitive pressures will result in a better price for the property. Another thing sellers like about auctions is the fact that there is a fast track to closing. The typical home auction will move a property without follow-up inspections, repair negotiations or other time consuming back-and-forth from contract to closing. Generally, the buyers are market-savvy, and they will do their due diligence and property evaluation before the auction. The price that takes the property is the price that goes forward to closing.
Buyers, of course, like auctions because they perceive an opportunity to buy at bargain prices. Whether it’s a foreclosure, tax sale, or just a motivated seller, buyers come to an auction to buy at below-market prices. If you are considering buying at real estate auctions, Dean Graziosi, in his book Be A Real Estate Millionaire, suggests doing your homework carefully, and going in with a plan for bidding, including a top number for each property. Stick with the plan, and you’ll either walk away with a bargain, or you’ll leave empty handed but not trapped in a losing deal.
There are three major categories of auctions, and they can result in very different outcomes.
· The Absolute or No Reserve Auction – With no minimum bid, and a requirement that the seller sell to the lowest bidder, this isn’t an auction type used a lot in real estate. The buyers love it, as it guarantees the highest bidder will get the property, but sellers fear the high bid will not be even close to what they were expecting.
· The Minimum Bid Auction – In this auction, the high bidder is also guaranteed to get the property. The difference is that the seller sets a minimum bid that they are willing to accept. This is a popular auction style for real estate, but sellers need to be sure to set their minimum at a price they’re willing to accept. There is a tendency for buyers to arrive wanting to pay only the minimum, thus the property might only get one bid.
· The Reserve Real Estate Auction – Because the seller reserves the right to sell the property at the high bid or not, buyers aren’t fond of this type of auction. They could do a lot of research work, come in with the right plan, be the highest bidder, and still not get the property.