A real estate auction is a common alternative for buyers who want to acquire properties without an agent or broker.
While there are certain advantages, property auctions involve financial risks more so if you plan to buy a luxury home.
What is a real estate auction?
A real estate auction is the process of buying and selling properties that change ownership through bids. Properties become sold to the highest bidders. In other words, the person who’s willing to pay the most gets the property.
Most homes and other types of real estate end up in an auction either by being foreclosed or failing to pay property taxes.
Banks often put homes in an auction when owners default on their loans. In the U.S., the Treasury Department holds online auctions for properties that may have unpaid fines and penalties.
The starting bid for homes will depend on the type of property. For example, you may need at least $50,000 to bid for a co-op home in New York.
Take note that some auctions require a deposit in cash or cashier’s check. The deposit amount may cost as low as $1,000. Most bidders recover their deposits if they are unsuccessful, depending on the auction’s terms.
What happens in a real estate auction?
Aside from banks and the government, a homeowner may organize an online auction or a live bidding process for their property.
A live real estate auction often happens in an agreed-upon meeting place (e.g., hotel convention rooms). In such cases, participants attend the event after inspecting the auctioned properties.
Keep in mind that some auctions may not allow bidders to inspect the properties before placing bids.
Online property auctions are another way of publicly selling real estate, especially during the Covid-19 pandemic. Participants should expect proxy bids whether it’s a live auction or an online bidding process.
Some people use proxy bids as their highest offer for a property. For example, you could bid US $1 million on a luxury home. The auction team may then attempt to secure the sale at a price lower than or matching your proxy bid.
Is it safe to bid for properties at auctions?
A real estate auction should be safe when it’s handled by a licensed auctioneer. Banks and the government normally vet the auctioned properties before holding a public sale.
Bidders should still determine if they can inspect an auctioned property in person before placing their offers. Most real estate auctions disclose a property’s condition, but successful bidders may only see it in person after an auction’s end.