Real estate auctions seem to be gaining popularity in the current market.  Two of the most common types of auctions are sealed bid and open air.  Regardless of the type of auction, buyers need to be aware of the potential downside of buying a house at auction. 

Auctions are nothing new.  Government agencies such as HUD and VA regularly use sealed-bid auctions to sell foreclosed property.  To bid on a property owned by HUD, buyers need a HUD-registered real estate professional to submit the bid and navigate the purchase process.  In sealed bids, bidders have one chance to offer the best bid.  No counter offers and no contingencies.  Properties are often sold “As-Is” with no warranties expressed or implied.  It is common for these properties to have extensive deferred maintenance and often in need of many repairs.  If you want to buy a HUD house, know your limitations.  This is not a good option for buyers that can barely scrape together a down payment with no money for repairs.

Open-air auctions are typically auctions held near or onsite of the property.  An auctioneer calls out the bids as bidders offer increasing amounts of money for the property.  A professional auction company commonly charges a 5% bidder’s premium.  That means the winning bidder pays an additional 5% of their winning bid to the auction company as commission.  Also, some auction companies require an up-front deposit or fee for the privilege to bid at their auction. 

This year in the Albuquerque market, one major new home builder used the open-air auction process to sell some inventory.  The houses were new and in good condition.  Some houses went for substantially less than what buyers paid only a few months prior to the auction.  We have yet to see other new home builders use the auction forum to sell excess inventory.

Within our Keller Williams Realty office, an Associate Broker has organized sealed-bid auctions for vacant lots.  He has several clients with vacant land that are willing to participate in an auction.  Some reserve amounts were established slightly below market value to inspire interest.  So far, these auctions seem to be well received with increasing success.  Sales have been made and some bargains enjoyed.  If you want more information on the next one of these auctions, send me an email with your contact information and I’ll forward the next announcement to you.

Auctions can be a good way to buy real estate. However, always do your research before participating.  Inspect the property with someone who can help you estimate the possible costs for repairs.  Know what the property is worth before you bid.  Research the costs for bidding and the necessary requirements to participate.  Find out who pays the closing costs, title insurance and all the other costs that go along with buying real estate.  Establish a budget and maximum amount to bid and stick to it.  Hire help when you need it.  An attorney can help you with contracts.  An accountant can help you with tax considerations.  A Realtor can help you with real estate market value information. 

Be informed and prepared before you buy is always good advice.  Happy bidding.