How Do Real Estate Auctions Work

How real estate auctions work?

Buying a home at auction can be perfect for those who want to invest in real estate industry. Real estate auctions offer a variety of properties from commercial to residential. Auctions are also held for bank owned properties, short sales and foreclosures as well as non-distressed properties.

It has many advantages too. It is beneficial for both short-term as well as long term investors. As buying a property is a big expense, it is important to make sure you understand clearly how the auction process works.

How Do Real Estate Auctions Work

Mainly, there are four main types of property auctions:

  1. Reserve auction: In this type of auction the reserve price is not published. Hence, the seller keeps the right to accept or reject the highest bid. This gives him the maximum control over the process.
  2. Absolute auction: In this type, the property is awarded to the highest bidder, regardless of its final price. There is no minimum reserve price on this property thats why this type of auction is also known as auction without reserve.
  3. Minimum Bid Auction: In this type, the seller can set a minimum reserve price on the property and the bidders need to to bid over this minimum reserve price. This makes sure for the seller that the property will be sold above the specified amount.
  4. Foreclosure auction: These type of auctions are not very much profitable to the money lenders. They take place generally due to unpaid tax issues and these properties are often sold at less than market value.

Auctions take place at publicly accessible space like local government courts, hotels or at conference rooms of the real estate agencies. Many a times real estate auctions also take place right on the property site. Foreclosure auctions are generally held by trustees appointed by banks or money lenders. Whereas auctions related to claim of unpaid taxes are conducted by local government agencies.

How Do Real Estate Auctions Work

There are two types of real estate auctions: live and virtual. Live real estate auctions are held in-person and are free to attend by anyone who is interested. Virtual auctions are held online and can last for over a span of few days or even weeks.

Now a days, the online auction is becoming more customary because it allows the buyer to participate from anywhere as long as he is having an Internet connection.

They operate on a bidding process which is set over a period of time. If no one bids in the given specified time the clock expires, the property is then sold to the participant who gave the final bid. If someone bids within the time allotted, the clock resets.

The procedure of auctioning the property in an online auction is almost similar to a live auction. Both live auctions and virtual auctions require all potential buyers to register before attending the auction which qualifies them as a bidder. This is done by filling up a bidding form with all the details of payment. This application is then submitted before the auction date.

All bidders need to bring a certified proof to show that they are in possession of sufficient funds to pay for the property in full. This is usually a banks’s cheque that is equal to 5% of the opening bid price which they can then assign to the auctioneer if they win.

If you win the auction, you will have to pay 5% to 10% of the closing bid price within 24 hours. After that, you’ll have approximately one or two months to make full payment and to get the title transferred to your name. If you fail to make payment, the auction house keeps your down payment and re-auctions the house. So if you are planning to bid, be prepared for the total money required by the auction holder.

How Do Real Estate Auctions Work

However, in virtual auctions the winning bidder is supposed to deposit full payment within twenty-four hours. If he fails to do so, the agency keeps the deposit of down payment submitted at the time of registration and then property is re-auctioned.

Unlike live auction sales, properties sold in online auctions do have an agent commission which is given to the real estate agent for the services they rendered.

On auction day, the auctioneer comes at the property one hour before the auction time. Before the auction starts, he will make important announcements regarding the property, documents, terms of sale, laws and rules of the auction. The agent will also give a clear demonstration of the documentation about the property on the day of auction.

You should also arrive at least one hour before the auction start so that you will have enough to time to register for the auction, ask any queries and also you can have a last look at the property before you go to bid on it.

Finally, place yourself from where you can listen properly and see all the activities of the auction. Be sure you completely understand the terms and conditions of the auction before making a bid.