Auctions: What you need to know in 2024

What are real estate auctions and why should you want to know about them?

Auctions  are a day of sale, in which any registered party can bid on the price of the property and the highest bidder wins the right to purchase the property with no contingencies, generally within 30 days of auction date. Many people never think about auctioning their property as an option, nor do they think about buying property at auction when they’re shopping for a new home.

Auctions tend to garner a lot of negative connotations from sellers and most buyers just don’t understand how they could benefit from them. Many potential sellers see auctions as an option only for those going through tough financial times such as divorce, potential  foreclosure, or other types of financial stress that requires a quick sale, but this is not the case. Buyers tend to see auctions as unapproachable and intimidating; a place for only experienced investors or buyers. Again… not the case. 

Sellers think they’re not going to get the highest sales price if they sell at auction and buyers think they’re going to get a deal, which may be the mentality, but doesn’t always end that way…

Below are the crucial aspects of auctions, how they function, and how they can be beneficial to you as a seller and as a buyer. 

Selling at Auction

While you may think auctions are only for those in a tight spot, there are many times it can be more useful to sell via auction than the traditional ways on or off market for multiple reasons.

1. There are no contingencies for inspection, financing, or appraisal. The property is sold as-is with no warranties or guarantees other than clear and marketable title. 

2. You’re guaranteed qualified buyers - buyer’s premiums varying from $10,000.00 to 10% or greater keep those “just looking” away

3. You don’t pay real estate commissions in an auction sale. A 10% buyer’s premium is added to the final bid price and covers marketing and commissions. 

4. You avoid multiple days of showings, open houses, and potentially unqualified buyers, nosey neighbors, and the inconvenience of having to leave your home multiple times a week.

5. You won’t pay any additional concessions on behalf of a buyer

Now you’re probably thinking that sounds pretty good… No showings? No contingencies? Buyers are there to buy on one day? Sign me up!

This is not without its downfalls, but there are two different types of auctions. Those with a reserve price and those without.

RESERVE AUCTIONS have a minimum price that must be met on the day of the sale to satisfy the seller’s need for payoff and net. This type of auction is great for sellers knowing that they’re able to work with the auction team to set a minimum price needed, but if not met or if there’s a strong delta between what the seller needs, and what was bid, it can result in a failed auction and lots of time and resources lost.

NON-RESERVE AUCTIONS sell no matter what at whatever the highest price bid is. If that’s $10 or $1,000,000. It is sold to the highest bidder that day without regard to a minimum sales price. 

For sellers, auctions can of course be a great way to quickly sell a property you’re in a bind with, but they can also be used for unique properties, development land, commercial properties with varying uses, and anytime you don’t want to sell the traditional route or are wanting to avoid showings and unqualified buyers.

Buying at Auction

Some common misconceptions buyers have about auctions are that they’re just for investors and that you’ve got to have cash to be able to bid. While it’s imperative that you have your financing lined up and ample funds available to close, I’ve seen many buyers have great success at auctions without being a cash buyer. It’s also very exciting to bid at an auction! It’s a total rush in the moment. 

Auctions can be great for buyers for multiple reason as well:

1. Your competition is in plain sight so no risk of losing out due to better financing terms or other contingencies. 

2. You’re only competing on price and you can stop bidding whenever you want

3. No guarantees, but there’s an opportunity to buy under market value and get a great deal depending on the auction and the seller’s scenario

4. You get advanced notice and many times can inspect the property or bring an inspector with you before the auction. Unlike traditional sales where you contract before inspection, you can make early assessments of repairs or potentially undesirable conditions

Of course auctions are not without their downfalls. It is an as-is purchase. You only have 30 days to close. You need to have at least $10,000.00 to put down on the day of sale if you win the bid. This keeps a lot of first time buyers out of the bidding process due to financial constraints, but that’s ok too. I wouldn’t ever recommend an FHA buyer who may need closing costs to bid at auction, it wouldn’t put them in a good financial situation and would put them at risk of losing the down payment they do have. Although, if you’re an experienced buyer or have a substantial downpayment saved, this can be a great opportunity for you.

My team and I are here to help and provide you with the resources you need. If you think your home or a property you own may be a good fit for an auction, we’d be happy to put together a more tailored approach to your situation and if you’re a buyer, whether you’re looking to invest and pick up a deal, or curious about how you could purchase your next home at auction, we’re here to help you determine if bidding at auctions could be the right fit for you.