This section is a generic overview of real estate auctions and to answer frequently asked questions (FAQ’s) from bidders or prospective buyers. The auction process is designed to be simple, straightforward and very fair to all of the parties.
There are no “secret” negotiations like the “traditional” system; the process is transparent, in the open and simple.
Basic Terms of Sale for an Auction
1. Property is sold as is where is with all faults.
2. Inspections are usually limited to be fair to all parties.
3. Bidders required to post deposit in “hard money.”
4. Disclosures prepared and presented prior to auction.
5. Price is established by open competitive bidding.
6. Property is sold with a free and clear title usually by deed.
7. Closing is all cash usually in 30-days or less.
Auctioneer is an agent of the seller and any information provided is from sources deemed reliable but is not guaranteed. Bidding at auction is a legal and binding contract to purchase on the published terms and conditions.
NOTICE OF POSSIBLE SHORT SALE
When you see the words “short sale” it usually means this is a “pre-foreclosure auction” meaning that the seller is behind in payments but the property is not yet in foreclosure.
In the event the high bid is below the mortgage amount, the auctioneer will submit the auction contract to the lender for approval of a “short-sale” where the lender may sell for less than the mortgage amount. The short sale approval process may take up to 30 to 60 days. It presents an excellent opportunity for a buyer to purchase a home at a discounted price.
BIDDING IS OPEN TO ALL MEMBERS OF THE PUBLIC
All auctions are open to bidding from members of the general public meaning that anyone who is properly registered with the required deposit may bid on the property. You do not need to have a real estate agent or realtor represent you in order to bid at an auction.
INTERNET BIDDERS MUST REGISTER THE SAME AS PUBLIC BIDDERS
Internet bidding is welcomed and encouraged at most auctions, however we require anyone who places an internet bid, to complete registration forms, and post the required deposits and to do everything any other bidder may be required to do. We strongly encourage all bidders to inspect a property by attending one of the scheduled previews in person.
Experience has shown that people who have inspected a property but cannot attend the auction for one reason or another, have been great bidders.
WHY ARE THEY SELLING AT AUCTION?
The auctioneer has been contracted to provide the seller a cash buyer at auction on a specific date. The seller has pre-paid thousands of dollars in auction entry, advertising & promotional fees and is very motivated to sell his/her property.
The market has slowed to a standstill in most of the country and over 98% of “traditional” agents have never experienced a down market during their adult lifetime or career and simply don’t know what to do.
Auctioneers on the other hand have been regulated since Roman times and can provide 2000 years of auctioneer traditions combined with 20th century technology.
Did you know that over 1-million properties have been sold at auction in 2007 and the number is expected to go higher in 2008?
Did you know in many states it’s illegal for a realtor to tell you what the last “offer” on a property was or is? Rules of agency and antiquated laws and methods are the culprit. It’s not the agents fault that’s just the way it is.
With an auction:
→ The property is sold on a specific date.
→ There is no negative haggling; the price starts low and goes up to the market value.
→ No negotiations’ with confusing contracts, offers – counter offers, etc.
→ No “re-negotiation” after an “offer” is accepted based on inspections or financing.
→ Buyers pay 100% of the “present cash market value” 100% of the time.
→ Buyers do not need a “professional” to negotiate a 5-page contract for them.
→ Buyers are happy knowing they only paid one bid more than someone else was willing to pay and not an inflated asking price.
Traditional agents are welcome as a BUYERS’ agent to represent a buyer at the auction and earn up to 2 to 3% without costing the seller or the buyer one cent more.
THE SELLERS CAN PLAN FOR CASH ON A SPECIFIC DATE!
The stock market on Wall Street is the nations biggest auction 5-days a week.
IS THERE A RESERVE OR MINIMUM?
Real estate sold at auction is presumed to be sold with a reserve unless advertised as being absolute, unreserved or with no minimum and no reserve. In this day and age most people have a mortgage against their home and simply do not have the cash on hand to payoff their home loan before auction day.
The auctioneer requires the seller to obtain a certificate of release from their lender prior to or before advertising an auction as absolute or without reserve. It is the law in many places.
I do not know of a greedy seller who turned down the high bid, who actually sold the property for more later. It just has not happened yet. If the seller cannot deal with the reality of the cash market value, they pay a “painful” no-sale fee in the thousands of dollars.
While most property sold at auction has a “secret” reserve price, i.e, the mortgage balance, in most cases, it is because the seller does not have the cash on hand to pay off the loans before the auction.
In the event the property does not meet to “secret” reserve price at auction we may still write up the contract with the high bidder and give the seller 48-hours or two business days to accept or reject the high bid.
There are only two times when a property does not sell at auction.
The first is when one owes more than a property is worth. In this situation we are dealing with lenders to accept short sales for less than what is owed even if the property is not in foreclosure.
The second time a property does not sell at auction is when a seller is greedy and wants more than a property is worth.
WHAT IS THE RESERVE PRICE?
There are two questions asked the most at every auction is: what is the reserve price and what will the property sell for. We can’t answer either one and here is why.
The reserve price in a listing agreement with the seller is “secret” for a number of reasons. The main one being is that we don’t know what someone is willing to take until there is cash on the table. Before an auction everything is all talk and “what if” from both buyers and sellers.
The auction determines what the property is worth and there is a non-refundable deposit with a signed contract for the seller to look at. If the property passes the reserve price during the bidding, the auctioneer will usually announce the reserve has been met and the property will be sold to the highest bidder.
If the reserve price is not met during the bidding, which is more and more the case in this real estate market, then the memorandum of bid or auction contract is written up and presented to the seller for approval. In most cases the seller is willing to deal with reality of all cash, no contingency, 30-day closing contract, sitting in front of him/her.
The reserve price is nothing more than a “wish” of what someone wants versus dealing with the reality of what it’s really worth today in cash. And it’s all the seller is going to get.
WHAT WILL THE PROPERTY SELL FOR?
To ask this question is like calling your stockbroker and asking how much IBM or eBay will close for on the stock market today. If there is anyone with the ability to predict the selling prices of real estate at auction before it happens or the price of a stock, sporting event, horse race or whatever please let me know who they are so I can hire them.
What people usually mean when they ask this question is: Can I afford this property? You won’t know if you don’t bid and you can’t bid if you don’t register.
WHAT IS THE OPENING BID?
This is one more way that people are asking what will the property sell for or what is the reserve price. There are many people out there calling themselves “auctioneers” who use realtor tactics such as a “minimum bid auction” where they state the property will be sold at or above a published minimum bid. If you see these kinds of tactics, run don’t walk away because it’s usually a realtor who spent a week at auction school or worse yet, hired a bid caller.
In an auction it really does not matter where you open the bidding. In many cases we open the bidding at the deposit amount.
Picture this property in an area where everything has been selling in the $250,000.00 to $350,000.00 price range. Someone opens up with a $25,000.00 bid. How long do you really think the bid is going to stay there?
“…twenty five, now fifty, seventy five, now one hundred do we hear one fifty, now one seventy five, two hundred thousand dollars now two twenty five…”
How long did it take you to read the sentence above? Please take a moment and read it again a few more times before asking what is the opening bid.
Ask any auctioneer anywhere in the world what is the opening bid and you will get the same answer “…it’s not where you start it’s where you finish that counts…” and we are back to you as the bidder to let us know what its worth to you. The auctioneer will keep asking for bids until the bidding stops.
Remember in real estate there is a mentality “if someone’s going to steal it… it’s going to be me!” the only way you are going to get a bargain at an auction is to show up and bid.
CAN I GET FINANCING FOR A REAL ESTATE AUCTION?
Yes the financing procedure is basically the same for an auction as it is for any other property. We try to have enough information on the property available for a prospective bidder to bring it to their bank or lender.
Right now the lending industry is hurting just as bad as the realtors are so if you have decent credit getting pre-approved is easier than ever. Ask the auction staff if there is a preferred lender for a particular auction event.
REMEMBER THERE IS NO FINANCING CONTINGENCY.
The property is sold without any contingency for financing or anything other than a free & clear title by deed. Please be sure you know where your purchase money is going to come from because there are no refunds of your bid deposit because you could not get financing.
HOW DO I CHECK OUT A PROPERTY?
The information contained is from sources deemed to be reliable however neither the auctioneer nor seller take responsibility for the accuracy of any information contained. We suggest that all prospective purchasers inspect the property prior to purchase and/or verify any information from independent sources.
You are the market. You are the one who determines the value by deciding how much you are willing to pay for the property. There are lots of resources available on the internet, from title companies, real estate agents, bankers and more to help you figure out what a property is worth.
ARE THERE ANY BACK TAXES OR LIENS? NO
All lots (parcels, homes, etc) offered at auction are sold free and clear of any liens or encumbrances including back taxes, water bills and association fees, unless otherwise noted and announced. All properties are sold AS-IS WHERE IS WITH ALL FAULTS AND NO WARRANTEE OTHER THAN CLEAR TITLE BY DEED.
When you are the high bidder for a property at auction, everything is paid up free and clear as of the date of the auction. (Unless disclosed otherwise)
WHAT ARE THE CLOSING COSTS?
The winning bidder is responsible for closing costs which include deed preparation, transfer taxes, recording and processing fees. The closing costs are usually recording taxes and fees from the County where the property is located. These can run from several hundred dollars to thousands of dollars depending upon the price of the property and its location.
Check with the auction staff for an estimate of the closing costs for a particular property. Closing costs do not include “points” on a mortgage or any loan origination fees.
CAN WE GET TITLE INSURANCE? YES!
Title insurance and escrow services are available at the buyers’ option and extra expense. Title insurance costs are like the recording fees they are based upon the price of the property.
CAN WE MAKE AN OFFER SUBJECT TO FINANCING? NO!
Real estate is not sold contingent upon financing, inspections, appraisals, feasibility studies or any subject to clauses.
CAN WE MAKE A BID BEFORE AUCTION DAY? YES!
Yes you may bid before auction day it is becoming more and more popular especially if you really like a property and are afraid it might go beyond your reach on auction day. If you want to place a ‘pre-auction bid’ all you need to do is print out the bidder registration, terms & memorandum of bid provided and contact the auctioneer and he will gladly send you the proper documents.
Any pre-auction bid must be on the auctioneer forms (not realtor contracts) and be on the same terms and conditions as the auction. Basically that the bid deposit is paid and closing will be within the specified time period.
Pre-auction bids cannot be made subject to or contingent upon financing, inspections, surveys, approval of or any of the standard realtor tricks.
Remember, the seller has pre-paid thousands of dollars to enter their property into the auction event and they are not going to cancel an all cash sale on an “if” because you don’t have financing in place or want to “study” the feasibility of ownership. Sellers who enter their property in the auction are very motivated and willing to review any and all responsive bids placed prior to the auction.
Pre-auction bids are never solicited by the auctioneer but they are always presented to sellers. If you do submit a pre-auction bid and it is turned down please do not expect a “counter-offer” because your bid is a binding contract to purchase not an “offer to buy” subject to certain terms and conditions being met. Auction law & tradition does not allow for a seller to come back with a price which is what makes it an auction because who will raise the bid.
MORE SIMILAR QUESTIONS AND ANSWERS
Q. How much are you asking for the property?
A. The auction method of selling real estate has been regulated for over 2,000 years. It is known as the “fair way” to value property because the bidders are the market and the market sets the price.
Q. I have never bid at a real estate auction, what do I need to do?
A. The process is simple: research, register & bid to win!
First you should download the Bidder Information Package from the web. The BIP contains copies of every document, pictures, seller disclosure, survey, deed, restrictions & covenants, appraisals and community information.
Second after looking over the information plan, you should inspect the property at one of the scheduled preview dates. If you can not attend on the scheduled dates, ask for a private showings.
Third apply for financing with your bank or any mortgage lender before the auction date. There is usually no charge to become “pre-qualified” and the process for closing an auction sale is basically the same as any other real estate transaction.
Q. What about the bidder deposit? Do you keep it if we don’t get the property?
A. Bidders are qualified with a substantial deposit in order to bid. On auction day the bid deposit is required to prove you are qualified to complete the transaction. When you register to bid we require bidders to hand over the deposit check and/or bank letter of check guarantee.
All deposits are held by the auction staff during the bidding process. At the end of the bidding the winning bidder will be required to sign the auction contracts and endorse the bid deposit check. IF YOU DO NOT WIN THE AUCTION YOUR UNCASHED DEPOSIT CHECK IS HANDED BACK TO YOU AT THE AUCTION!
Q. Can I just make a “verbal bid” to see if the seller will take it?
A. Not before the auction! In the real estate business “If it ain’t in writing, then it ain’t for real.” No surprise since the Supreme Court says the same thing.
Q. How do I know what the price will be or if it’s in our budget?
A. No one knows what the price will be until the bidders establish value at the auction. One can get a good idea of market values by checking what other homes in the area are being offered for or better yet have sold for. In this market any “comp” over 30-days old is really worthless and asking prices have nothing to do with the reality of the market.
Q. I (or my husband/wife) have a real estate license but we want the house for ourselves. Can we get a 3% discount by representing ourselves?
A. NO! Plumbers & doctors do not get a 3% price advantage just because they hold a professional license and it is illegal in most states to give more favorable terms to a certain class of people and not fair in the rest. (see Fair Housing Act)
Q. What is this internet bidding we see advertised?
A. Internet bidding is available for qualified bidders. We do not count internet bids against live bidders who have not properly registered or paid the bid deposit.
Q. Where will the auction be held?
A. The auction will be held at the property RAIN OR SHINE or at the advertised location.
Q. What is the reserve price?
A. As stated before, we won’t know until auction day.
Q. How much is the property going to sell for?
A. If I knew the answer to that question I would be at the track right now.
Q. Can we come just to watch?
A. Public auction means that the auction is open for any member of the public to attend and bid. If you want to “watch” please bring a cashiers check or bank guaranteed funds so you can register as any other public bidder would. NOTICE: All persons must register with auctioneer to preview property
NOTICE OF REQUIRED REGISTRATIONS:
Property preview or inspections:
All persons & prospective bidders are required to register to preview or inspect the property. Registration is free and does not commit you to anything and simply provides the auctioneer a record of who has inspected the property. This is a requirement as professional real estate auctioneers; we have a fiduciary responsibility to the seller and lender to keep a record of everyone who enters the property and/or is interested in purchasing the property. Persons who has not properly identified themselves will not be allowed on the property.
All bidders are required to register to bid by: Providing government issued identification, completing a registration form, presenting a cashiers or bank guaranteed check to the auction registration clerk prior to being issued a bidders number.
If you are the winning bidder, your deposit will be credited towards the purchase price of the property. If you are not the winning bidder your un-cashed deposit check will be handed back to you before leaving the auction location.
INFORMATION IS FROM SOURCES DEEMED TO BE RELIABLE BUT IS NOT GUARANTEED OR WARRANTED IN ANY WAY SHAPE OR FORM. BUYERS ARE ENCOURAGED TO PERFORM THEIR OWN DUE DILIGENCE ON THE PROPERTY FOR SUITABILITY OF ANY SPECIFIC PURPOSE. WE ARE NOT ATTORNEY”S AND NO LEGAL ADVICE IS INTENDED.