Buying a house at auction is a fruitful process for both the sellers and the buyers due to its numerous advantages. However, before bidding on a property, it is crucial to get the whole picture, the risks, and the benefits that come with the purchase so you can make an informed decision.
First-Time Buyer? Here are the Pros and Cons of Buying a House at Auction
How do Auctions Work?
Auction is a process of buying and selling items, for instance, a house, through bidding within a predetermined time. At the end of the allotted period, the highest bidder gets the house and makes a deposit, generally about 10% of the total cost. This deposit is nonrefundable in case the buyer fails to pay the rest of the fee within the agreed-upon time.
In most cases, preparing your cash on hand gives a considerable advantage in the bidding war. In other cases, some auction houses let buyers pay through finances such as a bank or a private company.
Before you bid on a property, make sure you understand the terms. Generally, you’ll have to submit proof of identity and of financial means to purchase a house before the auction. You might have to authorize the auction company to place a hold on your credit card or provide a cashier’s check. If you don’t win the bid, the hold will be released, or the check won’t be cashed.
If you can’t be at the auction in person, you can usually bid remotely by proxy, through telephone, or online.
Types Of Auctions
Whether in person or online, Auctions are determined in one of three ways depending on the house owner’s preference.
- Absolute Auction – In an absolute auction, there is no minimum, and the highest bidder wins regardless of the bid amount. This type of auction attracts the most bidders and is preferred by most financers.
- Minimum Bid Auction – This method employs a minimum bid amount on a property. The minimum bid amount is announced in advance and before opening bidding on the property.
- Reserve Auction – In a reserve auction, the seller has more liberty to accept or reject the offered bid. In this case, there is a secret minimum bid set by the seller. If your bid is lower than the minimum amount the seller set, they may simply reject the offer but can ‘take off’ the reserve and let the sale go ahead.
Benefits of Buying A House At Auction
House auctions are very attractive because of the following advantages:
Opportunity to Buy a House at a Cheaper Price
The most significant potential benefit of buying a home at a real estate auction is that you might get a chunk of discount off the market price. Typically, you can purchase an auction property for as little as the amount owed to a mortgage lender, tax authority, or Homeowner’s Association.
Unlike the traditional buying process, which can take months or even years, houses bought at auction are completed within 28-days. The start and end dates are readily available for everyone. There are no back and forth negotiations between different parties, thus avoiding the long and indefinite waiting periods.
On auction day, you can see all the other bidders in the room, with no pressure to get your offer in first. Yes, the atmosphere can be competitive, but once you know the type of auction you are bidding at, all the information and auction details are presented then and there.
Risks of Buying A House At Auction
Buying a house at auction comes with the following possible cons. Here are some of the downsides you might want to keep in mind:
You Must Have Cash To Make The Purchase
Paying cash advances you to the bidding race. It helps you gain bidding privileges when you offer a cash deposit before the auction. Suppose you win in the bidding war. You will have to pay cash, certified check, or wire transfer immediately to pay for the purchase after the auction ends or within a few days.
Houses Are Sold As-Is
In real estate, the term “sold as is” means that the property’s general condition is already accounted for in the cost of the house. It could also mean that the seller will not address the inspection issues, make actual repairs, or offer a reasonable credit for the additional costs.
When you buy an auction property, you might not be able to conduct a home inspection before the purchase. However, some home sellers do allow for inspections before the auction date. Otherwise, when you buy a house at auction, you will have to deal with possible repairs and liens that come with the property.
Finding Real Estate Auctions
If you are looking for properties sold by auction in your area, check out potential listings at your local government, real estate, and foreclosure information websites. You may also get in touch with real estate agents, brokers, banks, and lenders as they may have informative leads.
If you are looking for a house in Oklahoma, check out our listings at Wiggins Auctioneers for quality properties. Get free consultation
Looking to buy a property? Wiggins Auctioneers has conducted 5,800 successful auctions and offers traditional listings for your property. Our experienced and dedicated staff at Wiggins Auctioneers provides the service you need for a stress-free transaction. Contact or visit us in our offices located in Enid, Oklahoma City, and Fairview, OK.