Auctions can offer value without fixer upper headachesReal Estate Report
(April 7, 2017) Attending a real estate auction is an opportunity to purchase a property below market value.
Contrary to popular belief, not all auctions are of distressed properties. In certain situations, sellers may choose to sell their real estate through an auction. It’s an intense, accelerated real estate marketing process that involves the public sale of a property.
For example, many “estates” choose to sell their real estate and personal belongings in an auction to accelerate the sale for the benefit of multiple heirs.
Auctions can benefit a buyer in many ways. For one, the buyer knows the seller is committed to selling quickly. Secondly, the buyer is able to control their purchase price. Furthermore, if the auction is termed “absolute auction”, the buyer knows that the winning bid will definitely be accepted by the seller, because in an absolute auction, the highest bidder acquires the property being auctioned irrespective of the bid amount because no reserve price has been set.
Of course, a flip side to the coin is that auctions require cash, as you will need at least a portion of the purchase price when you win the auction and could have as little as 24-48 hours to pay the balance (this is usually an option for cash buyers, and can help a buyer save on certain fees and settlement costs).
But whether you are purchasing with cash or financing the purchase, you’ll have to be prepared with cash on hand and a budget for the property you want when attending the auction. It’s also a good idea to have your financing in place, or at the very least, a pre-approval amount to use as a guide in the bidding. Also of importance to note is that properties sold at auction are “As-Is” sales.
Enlisting the help of a knowledgeable, licensed realtor can help alleviate some of the pressure associated with the unknowns for any particular property. Another advantage to utilizing your realtor’s guidance is their ability to help determine the property’s market value through running a comparative market analysis.
Sometimes foreclosure listings are sent to auction because their days on market exceed what the bank deems as a reasonable amount of time to sell. But in many cases, these properties are being sent to national auction companies where buyer premiums can be as high as 5-10 percent of the total selling price.
A buyer premium is a fee added to the winning bid, and is added to the total purchase price. For example, if the winning bid for a property is $500,000, and the buyer’s premium is 5 percent or $25,000, the total purchase price is $525,000.
Lauren Bunting is a licensed Associate Broker with Bunting Realty, Inc. in Berlin.