Buying a Home at Auction

Buying a home at auction

Buying a home at auction has been a growing trend, even though it just a small percentage of residential sales. Since the recession in 2009, buyers have seen auctions become more frequent and have noticed that this is a faster, simpler way to buy a home. It does come with some risks to the buyer, as most of these homes are sold “as is” with little time for inspections, personal or professional.

There are 3 types of auction

1. Absolute Auction. This is also called an Auction without Reserve or a No Reserve Auction. There is no minimum bid, and the property will sell for the highest bid no matter what that price may be. This type of can generate higher-than-market value prices, but buyers love the excitement of the possibility of a great deal on the home of their dreams.
2. Minimum Bid Auction. The home has a minimum price, and that baseline is advertised well in advance of the sale. This is often a less volatile type of auction, bringing out committed buyers but not the big gamblers, and the buyer knows in advance which homes are within their budget.
3. Confirmed Bid Auction. This is also called a Reserve Auction. There is a minimum price, which is not advertised. The highest bid must be approved by the seller as being acceptable before the sale is final. The least popular for buyers, this type of auction can be frustrating for buyers who have placed the winning bid only to be told it wasn’t enough.

Buyer costs

Buyers at auction are responsible for closing and title costs, and must often place a deposit or “earnest money” with the auction house before the sale. Homes are sold in current condition, so unlike a traditional sale where buyers can ask for contingencies (issues fixed at the seller’s cost), all repairs or updates are the buyer’s responsibility.

Advantages

Auctions are fast, and sellers are motivated. There’s no drawn-out negotiations and the price of the home is determined by what you feel it’s worth to you.

The Due Diligence paperwork will hold a great deal of information about the home at auction, and you can schedule ahead to bring an inspector with you to the auction if you can find one that’s willing to do so under pressure. You know the date of sale and closing, and can expect an expedited process. You can go from auction to having the keys in hand in under a week!

Disadvantages

Auctions are fast, and the price you’ll pay is uncertain. If you need to plan ahead for big decisions, this may not be the home-buying process for you. You have to be pre-qualified to participate in an auction, as the auction house wants to be certain you can pay the price you bid. You can easily fall in love with a home, only to watch it sold right in front of you to someone with deeper pockets.

Who should consider an auction?

Auctions are particularly attractive to buyers who need a home quickly, are sure of what features and neighborhoods they want, and are financially ready to buy. Unsure if an auction is the right sale for you? Contact The Columbus Team today, and we can help you decide if a traditional sale or an auction will best meet your needs as a buyer.

Selling a Home at Auction

Selling a home at Auction

Selling and buying your home through an auction has been a growing trend.
Sales for 2008 totaled 56.8 billion dollars, according to the National Auctioneer Association, and the trend is growing, although still a small percentage of total residential sales.

There are 3 kinds of auctions:

1. Auction without Reserve: Also called an Absolute Auction, is an auction with no minimum bid. The property will sell at the final price, whatever that price may be. This type of auction often results in the highest price, as it attracts more buyers who then bid up the price against each other. It is, however the most risk for the seller.

2. Minimum Bid Auction: The seller sets the minimum price with the auctioneer, and the minimum price is advertised to the prospective buyers. This results in fewer buyers attending, but there is less risk for the seller.

3. Reserve Auction: Also called a Confirmed Bid Auction, it is an auction where the minimum price is not made public but the prospective buyers make bids, and the final bid must be confirmed by the seller as being acceptable before the sale is final. This type of auction attracts the fewest buyers, because there is no guarantee of having purchased a property even after investing the time and effort to place the highest bid.

Why sell at auction: Advantages for the seller:

• You know your home will sell on this date (unless you turn down the highest bid at a Reserve Auction.
• The buyer pays all closing and title costs
• There are no contingency clauses, no demands to be met, all sales are “as is.”
• Your property is only seen and bid upon by qualified, motivated buyers.

Why buy at auction: Advantages for the buyer:

• You know the seller is motivated and committed to the sale
• You control the price
• There is a ton of information about the property in the “due diligence” packet
• You know the sale and closing date
• A fast and firm sale

Buyer responsibilities

• Inspect the property and make sure it’s what you want/need.
• Get pre-approved by your lender, and know your maximum price (see below)
• Find out if the bid is the purchase price, or if there are fees added to the final bid.
• Be sure you want the property, that hefty deposit is often non-refundable. If the buyer backs out, the seller retains that deposit.

What are Seller costs?

The typical auction cost is about 8% of purchase price plus a promotion fee that is paid to the auctioneer at the start, by the seller. Despite this, and because the closing costs are covered by the buyer and there are no expensive contingencies, the result can be a net savings over a traditional sale for the sellers.

Are there bargains?

Can I sell at a good price? Auction sale prices average 95% to 105% of the suggested Comparative Market Analysis (CMA) price. Approximately 50% of auction sales actually go over the suggested CMA price. This means there are bargains to be had for savvy buyers, but sellers can be at ease knowing that although their price needs to be realistic, most homes at auction bring a good price near or over the CMA.

Should you consider an auction?

Yes. If your home must sell by a particular date, or you’re in a hurry to sell, an auction can give you that fast sale. Yes. If you’re pre-approved and willing to spend some time thoroughly vetting auction listings that interest you, you can find the right home fast.

No. If you are still looking for your own next dream home, or if you’re not sure if or when you’ll find it, you may want to sell your home in a traditional sale…giving yourself the gift of extra time, and the opportunity to change your mind. If as a buyer you make decisions over time and want to be able to negotiate contingencies, an auction is probably not for you.