When it comes time to buy or sell a house, your first instinct is typically to call a real estate agent to either help list your house or find properties to purchase. However, there are other ways to land your next investment, forever home, or sell that pesky piece of property you’ve had on the market for months.
Enter the world of auctions. Yes, you may associate auctions with buying an antique item or selling unused equipment, but both home buyers and sellers alike can benefit from real estate auctions. As the real estate market continues to boom, we’ll discuss the benefits of buying or selling your house using an auction.
Ultimately, a house is no different than any other item sold at an auction — it’s a piece of property that has value. That said, there are several things to consider when buying or selling at an auction.
Seeing a house up for auction used to come with a negative connotation that the house was simply abandoned and needed to be unloaded quickly to pay off debt. While that still occurs out of necessity due to financial woes, many housing auctions these days happen because the seller wants a cost-effective method void of any long, drawn out processes.
In the case of financial troubles, many houses end up on the auction market due to mortgage foreclosure or property tax default. The bank (in the case of a foreclosure) or the government (in the case of property tax default) takes ownership of the home and will sell it through an auction house.
Whether you’re buying or selling a house at an auction, it’s important to know what the various terminology means.
Absolute auction: The property goes to the highest bidder regardless of the price. An absolute auction will generate the most bidders since there is a greater chance for a bargain. Most foreclosures or tax default property auctions are absolute auctions.
Minimum bid auction: As the name suggests, a minimum bid is set before taking further bids. Minimum bids can help account for any outstanding liens, either from a mortgage or taxes.
Reserve auction: Similar to a minimum bid auction, the seller sets a hidden minimum bid they’re willing to accept. They can reject offers if the minimum price isn’t met, even if you’re the highest bidder.
Auctions can also feature either open or blind bids. Open auctions contain bid amounts that are open to everyone. This is how many auctions operate. Blind auctions are similar to silent auctions in that you don’t know how much other competitors are bidding.
For individuals looking to sell their home, auctions make sense for many reasons. Negotiating with a prospective buyer and their real estate agent can be a daunting task that goes back and forth without much progress.
Auctions take the negotiation out of it. The timeline typically takes fewer than 30 days. Since auctions are sold as is, you also won’t have to worry about making any improvements or be concerned with failing an inspection or conducting an appraisal.
You may ask yourself why not just use a traditional real estate agent? The truth is, auctioneers who host real estate auctions are licensed real estate agents. For example, our auctioneers at Dakil all hold their real estate licenses. This ensures a smooth process from start to finish should any questions come up.
Most of all, real estate auctions are easier to handle. Instead of holding open houses for months on end, auction companies handle the marketing and promotion of your house to ensure your property is seen by prospective buyers. All you do is set a date and time and wait until the winning bid comes across.
Auctions also are an attractive way for banks or the government to recoup their losses in a timely manner. Instead of waiting to go through a traditional sale, an auction has a set date and time.
On the flip side, buyers tend to gravitate toward auction properties due to the ability to score a bargain. The houses found at an auction are sold as-is, meaning you assume whatever condition the house is in. Since there isn’t an inspection, disclosures, or other measures taken in a typical real estate transaction, buying at an auction is often viewed as being “sight unseen.”
In some cases, real estate investors are common participants in housing auctions since they are more risk-averse than your typical home buyer. Often, this has more to do with the policies and procedures of the auction house.
Some auctions have strict rules on viewing the property beforehand. At Dakil Auctioneers, Inc., we hold open houses for all our properties to allow prospective buyers to see what they’re bidding on. This way, this limits surprises should you place the winning bid on the day of the auction.
If you’re interested in buying a house at an auction, you start the process like you would any other real estate transaction. Instead of going on Zillow or Redfin or to your local newspaper real estate section, you can contact your local auction or government to inquire about upcoming auctions. For example, our real estate page is updated frequently with new auctions.
Don’t be afraid to lean on local real estate agents if you have friendly relationships with them. They can assist you with accessing the multiple listing service (MLS) that features specifications on houses, including photos and other information that isn’t available to the public.
If you find something you like and are unsure of what price to bid, check the local comps in the area to gauge what similar houses have sold for. Just remember to account for any repairs needed. For example, if similar houses are selling for $200,000, but the house you bid on needs an estimated $50,000 in repairs, don’t bid more than $125,000 or $130,000 to account for repairs and other related costs.
Make sure you have the necessary cash or financing available to purchase a house before you step foot in an auction. We recommend you receive a pre-approved loan before attending the auction. At Dakil, we require a 5% down payment via cashier’s check or cash. Closing costs and title insurance are split 50-50. You will also need to account for any expenses for the buyer’s premium (a percentage paid by the buyer and added to the winning bid price).
It’s also beneficial to check for any outstanding liens because you may inherit them if you’re the winning bid. You can hire a title company to run a search on properties in your area. A clear title will prevent you from incurring any hidden costs. Purchasing title insurance will also help protect you against any unaccounted liens that may come up.
The next time you need to buy or sell your house, consider using an auction house to get the most out of your transaction. In Oklahoma, we hold real estate auctions more than a half-dozen times a year, sometimes once a month. These auctions feature properties ranging from foreclosed houses to beautiful $500,000 homes.
To stay up to date with the latest available properties, check our upcoming auctions page along with our real estate page. If you are considering selling your home and want to learn more about what that process entails, contact us today or call directly at (405) 458-1645.
