If you’re not familiar with the auction process, or you have some preconceived notions about what to expect at auction, this blog post will dispel the most notorious myths associated with real estate auctions.
Myth #1: The reason people sell at auction is because they are in bankruptcy and their home or property is in foreclosure
The fact is that real estate auctions have been a viable alternative to traditional selling methods for luxury property owners for a number of years. Sellers who choose auctions are motivated sellers who want control over when their property will sell and don’t want to play the game of waiting and gradually reducing the listing price.
Owners who choose the luxury real estate auction route may be builders who are closing out a project, residential or commercial sellers who have grown tired of the traditional real estate methods, owners in the process of setting an estate, or lenders seeking a rapid non-contingent sale. Many people opt for the accelerated format that is inherent with an auction because it saves them thousands—or hundreds of thousands—of dollars in carrying costs.
Myth #2: Whatever the auctioneer gets the day of auction is what I have to sell my property for
While the final price on auction day is the final price for which the home sells, the seller has a few options as to what type of auction he would like the auction firm to conduct.
In an absolute auction, there is no minimum reserve or starting bid price. The final bidding price on the day of the auction is the price at which the property will sell. This type of auction tends to bring a higher price on auction day, as you will have more people participate in the auction because they know the seller is committed to sell the property on auction day.
Minimum Bid Auction
Unlike a no-minimum auction, the seller can choose the minimum at which the property will be sold. The real estate auction professional guides sellers in choosing an appropriate minimum bid.
Reserve Price Auction
If the seller sets a reserve price, he or she can choose to accept or reject any or all offers that are made on the property at auction.
Prior to advertising the auction, the seller and real estate auction professional should consult on which option is the best to receive the maximum value from the sale and meet the objectives the seller has for the auction, as well as the status of the market and the temperament of interested bidders.
Myth #3: If I work with a buyer’s agent, that person will not be paid
Certainly, there are some buyers who choose to represent themselves in the auction process, but many bidders will go through a licensed real estate broker. If that broker brings a registered client to the auction—and that client is the successful high bidder—a commission will be paid to the broker from his or her agency.
Myth #4: If I buy a home at auction, I lose my opportunity for the property to be inspected
One of the components that attract both buyers and sellers to the auction process is its transparency. During the marketing period, potential buyers are given the opportunity to tour the property and bring in their own independent inspector. If they do not have an inspector, either their real estate agent or the auction company can provide names of reputable area home inspectors who will provide a written report about the home.
Potential buyers are responsible for the fees involved with inspections and understand that the seller is not obligated to pay for any repairs for issues uncovered during the inspection. Homes are sold at auction “as is”; the inspection is to provide even more information to the buyer.
Myth #5: Buyers must pay in full with cash at real estate auctions
In order to secure a spot at an auction, all bidders must provide a deposit, usually 5–10% of the total expected sale price. That deposit is treated as earnest money, just like in a traditional real estate sale. Bidders who attend the auction and do not secure the highest bid are returned their deposits shortly after the conclusion of the auction.
The winning bidder applies the deposit to the total purchase price and must pay the remainder of the auction price within 30–45 days. That can be covered with cash or through financing. If the high bidder is unable to complete the purchase, the deposit is forfeited. The property is then often offered to the next highest bidder or put back up for auction.
Myth #6: Buying a home at auction is “taking advantage of another’s misfortune>
Not all homes end up at auction because of the owner’s inability to pay the mortgage. In fact, for many luxury homeowners, selling a property at auction is their first choice due to its speed and transparency. Regardless of why a home is sold at auction, the quick sale does much to revitalize the economy.
“Our auctions help fuel the economy, because when there is a house sitting vacant, there is no one paying the mortgage or the property tax or utility bills. There is nobody hiring trades people or shopping at the local stores for household items. When we sell that property, someone purchases it and someone starts doing all those things,” says Maverick Commins, President of Supreme Auctions, a national luxury auction firm.
Myth #7: Only experienced investors can really compete at real estate auctions.
Auctions are open to anyone who can pay the deposit required to be considered a bidder. While some bidders use auctions to purchase vacation homes or rental property, some are everyday homeowners looking for an alternative to traditional real estate. Many have never even attended an auction before, so it can be a level playing field for all bidders.
Myth #8: I won’t get free and clear title on the property or the owner might take the property back from me after buying it.
Just as with a traditional real estate sale, all of the paperwork, forms, and legal obligations are the same. A title company will ensure a free and clear title, and the seller is often responsible for the cost associated with the policy. As the buyer, it is always a good idea to check the terms and conditions of the auction and make sure that you have a clear understanding of what the terms are, and how they will affect you.
Myth #9: The auction company places people in the crowd to bid for the seller
This process is called shill bidding and is for the most part illegal. A reputable auction firm has no need to do this since it will have conducted extensive marketing on the property to ensure that qualified bidders are in the audience. When you attend a Supreme Auctions luxury event, you can rest assured that only the highest standards of excellence and ethics are being practiced.
If you would like to know more about the auction process or working with luxury real estate auction firm Supreme Auctions to sell your luxury property fast, contact Supreme Auctions here or call 866-929-2243 today.