As a buyer, you might be able to find a good deal at a housing auction but it is not without risks.
There are certain types of properties that are particularly well suited to be sold through an auction:
- Repossessed homes that require a quick sale to meet the former owner’s debts.
- Unique or individual properties that are difficult to value
- Properties that are hugely in demand.
- Any property for which it would be hard to find a buyer through the normal route.
As a buyer or seller, you should be aware of the following disadvantages of a housing auction.
Disadvantages of buying at a housing auction:
In some cases, you can’t withdraw a winning bid, even if you’re not able to secure financing later. Penalties for backing out of a winning bid can be steep, often as high as 25 percent of the bid amount or whatever the bid deposit may have been.
All properties sold at auctions are offered ‘as-is’ which means that if there are problems in the property, there is no recourse for you.
There is a possibility that you will be able to bid more than the worth of the property since you have not had the time for a thorough inspection of it.
This means that even if you’re the winning bidder, you may not get the house if your highest bid isn’t over the reserve price, which should be disclosed in advance of sale.
Auctioneers may add a buyer’s premium of 5 to 10 percent of the winning bid as their cut. Be sure and take this into account when you’re calculating the maximum price you’re willing to pay. Confirm who pays the auctioneer’s fee.
Auctions require a high non-refundable binder. Most auctions require high and non-refundable binder, which usually amounts to at least ten percent. This could be a bit risky especially when you are a novice in the real estate business.
You might also fail to see me you might be responsible for tax liens on your new property. Make sure the property has a free and clear title. You don’t want to buy something only to learn after the fact that you may be l you might be stuck with many unexpected debts, which could ruin your investment.
If you’re buying a property as an investment, rather than a residence, the mortgage approval process may require a much larger chunk of change up front.
Disadvantages for selling at a housing auction:
There is no guarantee your property will sell successfully at auction. Reserve price is not always met
The market value of your property is decided on the spot. You can never be sure of precisely how much you will get. The buyers at the auction may decide that your property is barely worth the asking price, or worse, much lower. This would result in your property being sold at a lesser price than anticipated, or even remaining unsold.
Marketing costs tend to be higher.
Selling at auction is not the cheapest way to sell your house. The expense of auctioning off your property can be more than whatever profit the seller might look to gain from the sale. It is more expensive and there are certain fixed costs involved, regardless of whether you manage to sell it.
Auctions concentrate the buying process into a short period of time. This may turn out to not be the ideal time to sell. More interest may be right around the corner.
Auction contracts are unconditional and can’t be subject to finance or inspection and may not suit some buyers.
Could be more difficult to sell if passed in as potential buyers have a better idea what others are prepared to pay and reduce their offer accordingly.
Results in a greater invasion of your privacy during the pre-auction phase. You must make the property accessible to surveyors who wish to value it for their clients. You may therefore find that your house is overrun with people in the weeks leading up to the auction.
You can set the reserve too low and sell too cheaply or too high and not sell at all.
Advantages of selling at a housing auction:
There is a potential for a bidding war and the property could achieve a much higher than expected value.
With an auction, you have the benefit of a “reserve price” so you will never
sell your home for less than you want.
The auction process is a lot quicker than the normal sale process. The bulk of the work is carried out before the auction and once you leave, the sale is virtually complete. Exchange of contracts happens before you leave the auction and completion will take place within 28 days.
Advantages of buying at a housing auction:
If someone makes the seller a higher offer the next day, they can’t back out of the deal.
There may be some advantages for the home auction buyer and seller but it is very risky.
Sell your property using an experienced REALTOR. They have the knowledge and expertise to work for you at getting all your desired needs met in the sell of your property.
If you are interested in selling your LBI home, Click here to receive a complete market analysis of your Long Beach Island real estate.