How Does a Real Estate Auction Work

It's easy to attend a real estate auction and feel you are out of your league. Call it the presence of many professionals with more experience in the auction business or the chance you will be outbid by people with more cash to spend. Either scenario makes you uncomfortable. Feel more prepared by doing your research to better understand the characteristics of the property you want to buy and the general real estate auction process.

Location Affects

A real estate auction is also called a foreclosure auction, in which the sellers will try to secure the biggest financial return on a distressed property. An auction could take place at your local courthouse, in a rented space for sales of multiple properties, or at the property location itself. It's always up to you to feel ready to attend, armed with your research.

Confidence Supports

Overall, the real estate auction process will be easier to understand once you have seen it in action. When you go to a foreclosure auction in which dozens of real estate properties from the region will be sold, the pace could be very fast. Therefore, it pays to attend a large auction and learn the buying process. Alternatively, you could attend a few auctions of individual properties and see how the process works for each one. Watching the game players as they perform their roles could help you feel more prepared as a prospective buyer of a foreclosed property.

Preparation Counts

Larger auctions are the type of real estate auction for which you want to feel the most prepared. Don't be intimidated by people who seem to know more. Do your research on what you will need to participate in the auction. For example, you might have to bring a certified check with a minimum amount of $5,000 or a similar sum to demonstrate your qualification as a legitimate buyer. Ask the person offering the auction, either the auctioneer or the seller's attorney. The buyer who ultimately wins the bid at the auction is the only person whose check will be deposited.

Drama Distracts

Other participants in a real estate auction, especially big ones, might seem to represent the lender, which is pure drama, and other attendees could be mortgage lender representatives. At a large auction, expect the auctioneer to collect a flat fee for his or her services or simply a percentage of the transaction. The auctioneer may work for a large auction company.

Planning Works

The best part about the bidding process is the actual competition between bidders, which occurs rapidly, unless bids will be submitted and considered at a later time. Therefore, before you plan a real estate property bid, you should contact the auctioneer to determine if you can inspect the property prior to auction day. That would be critical for buyers considering a typical as-is bid on a distressed property. Inspection helps you determine the condition of the property prior to purchase. It could be difficult to back out of your bid later, depending on the terms of the auction. Most importantly, you shouldn't rely only on what you learn about the property from online or printed information from the lender or lender's real estate agent.

Scheduling Impacts

It's always wise to contact the auctioneer on the day before the auction or the day of the auction to determine if it will still take place as planned. It is not uncommon for the auction date to be moved. If you are participating in a large auction, you may have to go through the process of getting a bidding card and then be prepared to wave your card to the auctioneer to signal your bid amount during the actual bidding time. Alternatively, a real estate auction may offer you, the potential bidder, the ability to submit a bid in writing, also called an absentee bid, which will then be considered during the bidding process.

Amount Counts

In the end, a real estate auction is a potential way to get a distressed property from a lender for a bargain price, perhaps not much more than 15 percent below the fair market value. In a bidding war, you could expect the final successful bid to be near or at the listed price of the property. Realistically, you go into the bidding process knowing the maximum amount you can afford to spend, always with the expectation you could be outbid. That is where the research into properties that could meet your needs for price and other considerations will come in handy.

Satisfaction Matters

Ultimately, you don't want to get trapped into outbidding people with more experience if the bidding gets really intense. People may not be who they appear to be, and their purpose could be to drive up the bidding to a higher level than expected, so as to knock out the less experienced bidders. This is auction antics in action. Don't pay too much for a distressed property or make the mistake of making improvements on a property before you are sure it is yours, even after a successful bid at auction. Many states have a period of time after the auction during which the final sale and transfer of ownership must be approved by a court. This creates a delay of several weeks before you may take possession of the property. If your bid is not successful or if the bidding war goes over the listed price, you know in the back of your mind you can always attend other auctions and purchase a similar property.

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