Advantages of Buying at Auction
- The opportunity to purchase the property for less than you expected to pay.
- Knowing that you did not over pay because there was someone else willing to pay one bid increment below what you paid.
- All bidders are on a level playing field in that the terms and conditions apply equally to all bidders.
- No negotiating conflicts or haggling over price.
- When the auction is over, the buyer knows immediately if he/she won the item.
Types of Auctions
There are two types of auctions – Absolute and Reserve.
An Absolute Auction is one in which the property is sold to the highest bidder regardless of price. The advantage of an Absolute auction is that bidders know the property is going to sell without reservation of price. Thus it tends to generate more interest among potential buyers. In an Absolute auction the Seller cannot bid on the property nor can anyone bid on the Seller’s behalf. If an auction is not advertised as Absolute, you can presume that it is a Reserve auction
A Reserve Auction is one in which the Seller can put a minimum, or reserve price, on the property. The advantage of the Reserve auction is that if the property doesn’t bring what the Seller needs, it does not have to be sold. The disadvantage of a Reserve auction is that it is usually not as effective in generating interest and attendance among potential buyers. In a Reserve auction the Seller may: 1) set the minimum amount, 2) have the sale price subject to confirmation, 3) accept or reject the final bid, or 4) designate someone to bid on the Seller’s behalf, with proper disclosure.
What is a Buyer’s Premium?
A buyer’s premium is a percentage added to the bid to determine the final selling price of the property. For example, if there is a 10% buyer’s premium and the final bid is $100,000, the final selling price is $110,000. The buyer’s premium is paid to the seller and is in turn used to assist the seller in paying the costs of the auction. These costs usually include, but are not limited to, advertising, commissions, and other costs that may be incurred in bringing the property to auction.
The use of a buyer’s premium does not mean the buyer must pay more than originally intended. For instance in the example above, if the buyer intended to only pay $100,000, they should stop bidding at $91,000. In that case a 10% buyer’s premium would make the final selling price $100,100.
Most of our real estate auctions and our personal property auctions include a buyer’s premium. Whether a buyer’s premium is used, should be disclosed in the advertising or at least addressed prior to the auction. If it is not, feel free to contact the Auctioneer and ask.
Real Estate: For nearly all real estate auctions there are one or two prescheduled “open houses” several days prior to the auction. If you are not able to attend the “open house” we will try to arrange a separate time for you to view the property.
In nearly all real estate auctions, the property is sold “as is” with no condition or contingency. That includes inspections such as home, termites, radon, lead-based paint, etc. We want potential buyers to be as knowledgeable about the property as they care to be. Thus, potential buyers are welcome to get any kind of inspection they want but it should be done prior to the auction; it cannot be used as a negotiating item with the Seller; and the potential buyer must pay for the inspection.
Personal Property: The public is welcome to inspection the personal property prior to the auction. The inspection times scheduled vary depending on the type and amount of property being auctioned. In most cases the inspection time is indicated in the advertising. If not, feel free to call the Auctioneer to determine when the pre-auction inspection is scheduled.
Buying Real Estate at Auction
As more sellers are offering their real estate for sale by auction, more buyers are entering the market place by purchasing properties at auction. Some of the advantages of the auction method for buyers are:
- Pre-established terms and conditions. This puts all potential buyers on a “level playing field” in their opportunity to purchase the property.
- Open forum environment. Nearly all auctions are conducted in an open market forum whereby all bidders have the privilege of seeing who is bidding and observe and establish the bidding increments.
- Establishes the market value. Buyers seldom want to pay more for a property than they have to. In an auction, the buyer has the confidence of knowing that they had to pay just enough to get the property, otherwise the second place bidder would have gotten the property at the next lowest bidding increment.
- Potential for buying at a price lower than expected. Most bidders come to an auction with an amount in mind as to how much they plan to pay for the property. If the bidding stops below the amount they were willing to pay, they have saved money. If the bidding goes higher than what they were willing to pay, the bidder still had the option to stop bidding or to continue bidding.
Knowing the Terms and Conditions
This is a very important part of the auction that the buyer should be aware of. The terms and conditions of sale will vary among real estate auctions and among personal property auctions. Potential buyers are advised to be fully aware of the terms and conditions of sale before bidding on the property.
For example, for Real Estate auctions, key terms of sale would include:
- how much down payment,
- what forms of payment are acceptable,
- date of closing and possession.
For Personal Property auctions, key terms of sale would include:
- what forms of payment are accepted,
- when must items be removed from the auction site.