Tough market conditions call for creative ways to sell a property. More and more I’m hearing about an auction as a sales alternative. Buyers are looking for good deals through foreclosure and short sales but these are not always desirable homes. Auctions by privately owned homes tend to be a viable option for homes in the higher markets and so they tend to attract higher end buyers looking for a good deal. The marketing is slick, it looks like a good place to get a steal of a deal but WHAT IS THE CATCH?
There are many potential surprises when you attend an auction and they include?
- Minimum prices that may or may not be stated clearly before hand. The words “minimum” and “reserve” can be used to make people think that they might just get the deal of the century when there is no chance that the seller is selling for less than X.
- The owners and the auctioneers set the rules. If the rules change it is bad PR and will cause bad feelings but in the end what recourse does a potential buyer have if the seller reserves the right to cancel the auction at any time in the fine print.
- Buying a house at auction may come with strings attached. Like, pay cash within 24 hours or use a certain lender.
- Most auctions are final and binding so if you want to inspect the property do it before the auction.
- Watch out for premiums. Auctioneers get paid a percentage of the sales price. Many times this is in addition to the sales price and paid by the buyer.
- Watch out for bidders attached to the seller. The seller may advertise a no minimum, no reserve auction but have a bidder placed in the crowd who will bid the property up to at least the amount they want to sell for. If their placed bidder “wins” the bid the deal will mysteriously fall apart. We have had this happen recently in our market and the bids were inflated by a real buyer bidding against a relative. A week or so after the auction the real buyer was contacted by the seller asking if they still wanted to buy the property. The seller did not go through the registered agent who was helping the “real buyer”. Luckily the buyer smelled a rat and did not bite.