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Real Estate Auctions
by Jacqueline M. Duda

Man & Woman in front of houseThe sale is quick, the competition can be fierce, but you might just snag an exceptionally good deal. Real-estate auctions are on the rise again, due, in part, to the slowdown in home sales.

Why do home sellers turn to auctions? George Hunt, an auctioneer with Hunt’s Place in Gaithersburg, lists three main reasons. The first is an estate-sale situation where the owners live far away. Their jobs may require a lot of their time, says Hunt, and auctioneers can expedite the sale. Second, fixer-uppers are good auction candidates. Third, in a sluggish real-estate market, an auction can deliver a speedy and nearly surefire sale (most auctions are completed in 30 days).

Buyers enjoy the competition and the possibility of getting a good deal, says auctioneer Matthew Hurley, of Matthew S. Hurley Auction Company in Greencastle, Pennsylvania. Buyers like to see who they’re bidding against, he adds. Bidding that progresses up to the price an individual is willing to pay makes some feel they are clearly getting a fair deal, Hurley explains.

In selecting an auctioneer, make certain he or she has experience in realestate- auction sales and a solid reputation. Don’t be afraid to ask questions about his or her experience.

Here are some other basics about real-estate auctions that you should know before diving in:

“Reserve” and “Absolute”

Auctions Hurley says sellers in a “reserve” auction can accept or reject the highest bid (if the winning bid doesn’t meet their minimum acceptable price). This is stated in the initial written agreement between the seller and the auctioneer, and advertised as such.

In an “absolute” auction, the house is sold regardless of the dollar value of the highest bid. Hurley says there are a few reasons for an absolute auction: a court-ordered auction, (in most cases) bankruptcy, or a governmentordered auction. Some sellers choose an absolute auction to try to generate the maximum amount of interest in their property. Either way, the house has to go, regardless of what the highest bid brings. Absolute auctions lure buyers; some see it as their best chance to get a deal. But competition during bidding can also push the price up, says Hurley.

How Auctions Work

Sellers enter into a written contract with an auctioneer, similar to the agreement made with a Realtor (some 16 MC INSIGHT february 2007 by Jacqueline M. Duda Real Estate AUCTION February 24, 2007 10:00 am Real Estate Auctions february 2007 MC INSIGHT 17 real-estate auctioneers are also Realtors). Auctioneers earn a commission from selling the home. They conduct open houses, make phone calls and do all the advertising. The purchaser bears the brunt of these fees. Hurley says the major difference between an auction and traditional real-estate sales is the marketing. “You have a small window of time, in most cases, 30 days from start to finish, so marketing is critical,” he explains. Auctioneers typically send out brochures and invest in mailings, newspapers and websites to advertise homes for auction.

Most auctioneers hold open houses. But, because of the limited time window, they can’t host many. Some auction companies encourage prospective buyers to bring in appraisers and home inspectors. Others offer a Home Maintenance System (HMS) warranty. An HMS assures buyers that if anything goes wrong with the home’s major systems during the first year it will be covered. In most cases, auctioned homes are sold “as is”—there’s no bargaining with sellers to fix existing problems. If you can’t live with the home’s defects, or feel the repairs are overwhelming, simply walk away. Nearly all real-estate auctions take place at the property site (with the exception of foreclosures).

Financing

Similar to any real-estate purchase, buyers should know how much home they can afford (hence, how high they can bid) and make arrangements with their financial institution to qualify for funding well in advance of the auction.

If you plan on registering to bid, show up on auction day at least one hour prior to the start of the auction with the percentage or predetermined amount of money required by the auctioneer. Most require cash or a certified document from your financial institution stating that you are “good for” the amount of the required down payment and deposit.

No funds, no registration to bid, period.

According to Hurley, more bank representatives are attending auction open houses. “They (bank representatives) want to see who is interested in the auction to see if they can qualify the buyer,” he says. Once a bidder wins the sale, everything unfolds like a typical real-estate sale. The auctioneer usually requires 30 to 45 days to proceed to settlement, when the balance of funds is due.

Auction Day

On auction day, bidders show up with cash or financial documents in hand to be registered by the auctioneer. Some auctioneers will select top bidders to start the auction with an opening bid, while others begin with the amount called out by the first bidder.

Bidding begins, and typically, within 20 minutes the home is sold. It’s fast. After the bidding ends, buyers sign the contract, take their paperwork to their financial institution to obtain the remainder of the funds, and show up for settlement. (Buyers can select their own settlement company or use the seller’s company).

Congratulations, now you’re an old pro!

Web Resources:
National Auctioneers Association
www.auctioneers.org

Article provided by:

Mc InSightMontgomery County Insight Magazine
A unique perspective of today's lifestyles and communities
published by Osborne Images, Inc., a division of Osborne Publications, Inc.
9169 Arbuckle Drive, Gaithersburg, MD 20877.

Soly Romero, Publisher
Phone 301-977-0330 x1017 :: Fax 301-977-1670
E-mail soly@mcinsight.net

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