A first-timer’s guide to real estate auctions

Real Estate | 12 Nov, 2018 |

If you’ve never been to a real estate auction, you’re missing out on a fantastic opportunity to experience something unique – as well as a chance to purchase real estate at a steeply discounted rate. But there are also some intricacies that come with auctions – intricacies that you must master to be successful.

Why Real Estate Auctions?

Real estate auctions are unique in that they accelerate the real estate marketing process and pit prospective buyers against one another for non-distressed properties through open outcry bidding. And though it often scares away cautious buyers, there are plenty of benefits and advantages for those on the buying end of the deal. These include:

Speed. The normal real estate buying process can take weeks or months to unfold. Not only do you have to search for properties, but then you have to do your due diligence, put in an offer, spend time negotiating the details of a deal, and then wait for a closing date that may be a few weeks out. With a real estate auction, the entire process is consolidated into a short window of time. Within days after the auction, you typically have full ownership of the property you purchased.

Transparency. One of the best parts about a real estate auction is the transparency. All prospective buyers gather together and bidding is done publicly. There are no games between the buyer and seller – everything is out in the open.

Buyer is in control. In the traditional sale process, the seller is in total control. He sets the price, accepts or rejects offers, and has all of the leverage. In a real estate auction, the buyers set the price and the seller is totally removed from the process.

Simplicity. At the end of the day, a real estate auction is much simpler than a standard sale process. Buyers receive comprehensive information on the property via a due diligence package and don’t have to jump through a bunch of complicated hoops.

There are obviously advantages for the seller, too, but auctions ultimately give buyers the best opportunity to find a competitive deal on real estate. Success, however, is often tied to a thorough understanding of how auctions work.

4 Tips for Winning a Real Estate Auction

Auctions are fairly straightforward, but there’s also plenty of strategy involved. If you want to win a real estate auction, there are a few things you need to know. Take a look:

Do Your Research

You should do your homework before ever bidding on a property. While you may not be able to get inside a house before an auction, you can do a drive-by, poke around property records online, and review the due diligence package.

You also need to understand the rules of the auction. Every auctioneer has its own way of conducting the process and you don’t want to go in unprepared. At best, you’ll look foolish. At worst, they may ask you to leave.

Set a Maximum Price

With your research as support, set a maximum price before the bidding started. This is also known as your “walk away” price – meaning you’ll walk away when it goes above this point.

Be a Proactive Bidder

“Most professional bidders are deliberately aggressive and unemotional in their approach. They do this to unsettle others and crank up the pressure,” real estate company Hunter James explains. “Inexperienced bidders often wait to the end and hope the property does not exceed their budget. This is fine if you ultimately have the deepest pockets. But adopting this approach is reactive and relies heavily on luck.”

It’s important to be a proactive bidder. By getting involved early, you’re able to help set the tone, rather than play from behind. It also gives you some practice so that you’re prepared to actually win an auction.

Be Willing to Walk Away

You must always be willing to walk away from an auction empty-handed. Remember the research you did and the maximum price you set; don’t doubt yourself in the midst of chaos. Auctions are full of emotions and it’s easy to get caught up in the escalation of bids.

“I have seen people bid well above a reasonable price, just because they got their emotions involved,” real estate investor Matt Faircloth writes. “If you have some stops set before hand and stick to them, you can separate yourself from the ‘heat of the moment.’”

Lower Your Expectations

If you’ve never been to a real estate auction before, it’s important that you go in with low expectations and adopt the mentality of a student learning a new subject. While real estate auctions offer fantastic opportunities for deals, you also have to remember that you’re going up against more experienced individuals who know what they’re doing. By tweaking your mental approach, you’ll spend less time frustrated and more time honing your skillset.

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