6 Tips to Buying a Home at Auction

By
Real Estate Agent with Search Homes for Sale in Maryland at HelpShop.com

Auction Listings

I was a spectator at several residential auctions this year. For one, the home was run down, but many auctions are for well maintained homes. A contractor bought this run down home, and I think he got it for a good price. He has plenty of room to do a renovation right, and then sell for a profit.

For a buyer, auctions are a good way to find deals. But you have less protections. It is not as simple as ebay. Bidding for something over $100,000 is sure to make your heart race. But bidding against a real person also provides assurance that there is value in what you are bidding on. If you want to bid on a home at auction, then it is in your best interest to get all the help you can get. You can hire a Realtor such as us for no additional cost than if you were to bid and buy on your own. Most auctions have a buyers premium percentage that gets added to the final bid price. That percentage doesn't change if you have a Realtor helping you through it.

Ask a Realtor for help with the following:

  • Finding financing is more complicated with an auction. You don't know what the price will be before talking to the bank. The bank does not know which house you are buying and its value in advance.
  • Real estate value is local. Look at the other homes for sale in person that are in competition with the auctioned property. Do this in advance and you can get a feel for that value.
  • A competitive market analysis (CMA) is a report on the local homes in competition. Find out what they sold for. How long did homes take to sell. Which homes went off the market. What price drops have there been. What is the absorption rate. What is the current inventory.
  • An auction property is sold as-is. You can still get a home inspection for informational purposes. If you don't like what the inspector tells you, bid less or skip that house. If you like what the inspector says, you may be more informed than the other bidders and can be more comfortable out bidding them.
  • Do you need estimates on repairs? Get the names of contractors and any experience people may have had with them.
  • What would repairs do to the value. What should you fix. If you are an investor, how long could it take to sell once the repairs are done. Ask for a CMA for after repair value.

If you want to find a deal, then start your search at www.HelpShop.com. We provide the best tools for shopping for homes. The listing details for instance will show you the days on market, and the price history for that home. You can even search by price drop or days on market if you wish. Our MLS home listings search is something I am quite proud of.

As always let us know if we can help you with any of your real estate needs.

I hope everyone has had a enjoyable holiday season. Happy New Year!

Comments (3)

Maggie Baumbach
Search Homes for Sale in Maryland at HelpShop.com - Reisterstown, MD

Auctions are exciting to watch, and more exciting to win! As long as you do your research and stick to your game plan you are probably going to be alright financially. Thorough research is definitely the important part, it is easy to get caught up in the excitement during the auction. So doing research and taking a conservative view of any needed repair costs should keep you out of trouble. Also it is very important to have your financial game plan together ahead of time since you generally have 30 days to complete the sale. Make sure you have a reliable mortgage person. There are probably going to be a lot of auction opportunities in 2009, so this is a very timely post. Have a wonderful New Year in 2009!

Dec 31, 2008 11:56 AM
Silvia Dukes PA, Broker Associate, CRS, CIPS, SRES
Tropic Shores Realty - Ich spreche Deutsch! - Spring Hill, FL
Florida Waterfront and Country Club Living

Peter, thanks for the info. The public (and Realtors too) get confused over these auctions.  There seem to be some strange auctions going on where with opening bids of just a few dollars.  There must be more to it than but how do you explain it to a buyer?

Jan 16, 2009 11:50 PM
Peter Baumbach
Search Homes for Sale in Maryland at HelpShop.com - Owings Mills, MD

In our area, I haven't seen any auctions open with a few dollars bid. There are absolute auctions, and reserve auctions. With the reserve auction, the home will not sell unless the winning bid is above the reserve. In practice, when no bids meet the reserve, the auctioneer will pause the auction, and conference with the seller. Depending on the sellers decision, the auction is sometimes continued without reserve. Basically the seller can turn his auction into an absolute auction. An absolute auction will sell for a dollar if no one else bids. The fear of selling for a dollar is what makes sellers go for the reserve auction format. But, to get the most money for your property, you want the most people you can get at the auction bidding. The turnout at absolute auctions is always higher than at reserve auctions. Switching from a reserve auction to absolute auction in the middle of the auction can motivate spectators or low bidders to raise the bid. But, turnout is already determined. The house will have sold for less than the absolute auction would have brought. There is a secret middle ground available to sellers that prevents the one dollar sale, but allows a legitimate absolute auction. Good auctioneers have relationships with investors. They can get a commitment in advance from an investor to bid a minimum amount at auction. So the seller knows in advance that their house won't be given away, and the turnout will be larger because the public knows the house will be sold.

Feb 01, 2009 02:21 AM