Rachel Rabinowitz: How to buy real estate at auction
This week's guest writer is Rachel Rabinowitz, a residential auction specialist with Tranzon Fox.
A local, she graduated from The Park School of Baltimore, The George Washington University and Sotheby's Institute of Art London. She's a member of the Greater Baltimore Board of Realtors and the National Auctioneers Association.
Take it away, Rachel:
For the uninitiated, the prospect of purchasing real estate at auction can be daunting. So you’ve seen an advertised auction property and you’d like to take a closer look? Here are some best practices for pursuing real estate at auction.
• Engage the auction firm. The majority of our inquiries come from consumers and real estate professionals that have little or no experience with real estate auctions. We are glad that you are interested in the auction and want to provide you with as much information as possible.
• Identify the auction terms, read them carefully, and note any and all questions you may have. There are many different types of auctions so do not make assumptions based on previous experiences. Note what is required to participate in the auction. In most cases you will need to bring certified funds to the auction to bid on the property.
• Be aware of Agency. The auction firm represents the seller. You have the option of being represented by your own agent, typically at no additional cost to you. Your agent can help guide you through the process and will attend the auction with you.
• Perform your due diligence. If inspection and appraisal reports are not already available, in most cases, and at your own expense, you can have the property inspected or appraised for informational purposes prior to the auction. This is not a requirement, but if you are seriously considering purchasing a property this is a good step to take to ensure you feel fully informed prior to the auction. Real estate is sold at auction "as is"; however, the auction firm is required to disclose pertinent information to prospective buyers.
• Create your own strategy. What is your budget? You budget should include the high bid, the buyer’s premium, as well as your estimated closing costs. The "high bid" is a term used to describe the final bid at the auction. The buyer’s premium is a fee that added to the high bid to create the contract price. Have a financing plan; most auctions require a settlement period of 30-45 days. In the case of a foreclosure or a bankruptcy auction, your contract may require court approval prior to entering the settlement period.
• Pre-auction offers: People who do not have a lot of experience with the auction format often conclude that they would prefer to make a pre-auction offer, usually under advisement from their own agent, who may be unfamiliar with the advantages of the auction process. From the auction seller's prospective, a pre-auction offer needs to be significant to warrant the cancellation of the auction. If you conclude that you like the property at the "right price," the best way to participate is by attending the auction.
• After you've won the auction: During the settlement period you will have access to the property to finalize your purchase. Should you encounter a condition issue that you need to remedy prior to settlement (sometimes this may be a condition of your loan), it is not uncommon for auction buyers to do this at their own expense. It is important to be cognizant of the fact that your auction deposit is binding. Should you fail to proceed with the purchase, the deposit will not be refunded. Auction contracts do not have contingencies. The auction method of sale does not uniformly work for every buyer.
• Have fun. Nobody can predict with certainty what's going to happen at the auction. This creates a sense of excitement for all of the participants, including the auction firm. Don’t be the person who hears about the result the next day and wishes they had been there to get a fantastic purchase price. Once the auctioneer drops the hammer and declares the winner, the bidding is closed. As they say at the Maryland Lottery, "you gotta be in it to win it."
Auctions are public sales. You are welcome to attend the auction to just watch. Registering as a potential buyer is not an obligation to bid. While many auctions are indeed court-ordered, more and more private sellers are electing to sell their real estate at auction as part of a calculated strategy. Additional information about real estate auctions can be found through the National Auctioneers Association, the National Association of Realtors Auction Program, or by consulting one of the many qualified auction professionals in our own community.
The next time you see an auction listing, consider taking a closer look. You just might mind find the deal you've been waiting for.
Not every real estate buyer is able to participate in the auction format -- so it is fair to say, auctions aren't for everyone. However, for those who can participate, it is a great way to get a fair price. In what other method can you openly see your competition?
Thoughts, questions, arguments? Comment away.
If you'd like to write a guest post -- either to share expertise or to share an interesting housing-related personal experience -- please drop me a line. Details here.