Pros and Cons of Buying and Selling at Auction

**KevinTurner** · 08-31-2011, 06:33 PM

The word ‘auction’ comes from a Latin word that means ‘to increase’ and is a method of sale designed to have a buyer pay as much as possible without any ceiling price being disclosed.

That is all very fine, but if there is only one interested party then who do you compete against? The auctioneer of course and therein lies the problem.

An unskilled auctioneer will not be able to convincingly encourage the buyer or buyers to increase their bids and so leave the seller with the possibility of underselling the property. The buyer will be happy, but I thought a good deal was when it is good for both parties.

On the other hand, a skilled auctioneer working in tandum with a good negotiation agent, can have a buyer tied up in knots and paying far more than they planned. A very stressful situation.

Auctions go way back to 500BC when they were commonly held to sell women for marriage. Times haven’t changed all that much – it reminds me of that dreadful ‘Farmer Wants A Wife’ TV show.

Back to my point.

The pros and cons for auction are different for the buyer and the seller so I guess it depends on which side of the fence you are on.

Buyers will tell you they hate auctions because they feel like they are being forced to pay more than they would under normal private treaty negotiations. This comes about because of the pressure on the auction day. Also they have to do their due diligence before the auction which involves several hundred dollars to do building and pest inspections and that is without even knowing if they will be successful on the day. Many buyers will not even consider an auction property because there is no price guide.

Sellers dislike auctions because of the perceived pressure they will be under on the day to sell and also the cost of marketing can be as much as 1% of the value of the property.

If you are a seller, agents will tell you that the auction process is the only way to achieve a premium price because there is no ceiling or disclosed price. But go to any auction open house and ask the agent for a price and you will likely get one – albeit a low one to ‘bait the buyers’ and how is that going to achieve a premium price?

Buyers are encouraged to come to the auction because they believe that it could be a bargain and because they are told that the negotiations will be transparent and open.

So let me get this straight – The sellers want a premium and the buyers want a bargain and all this has to be played out in public. Is it any wonder that agents have a hard time selling the concept to sellers. Why do they bother?

Here is why…
1. Auction properties sell in fewer days
2. Auctions have a higher success rate
3. Auctions normally carry an extensive marketing budget
4. Auctions that sell under the hammer get a result with less time spent in negotiation for the agent
5. Successful auctions normally result in more auctions for the agent

Buyers will tell you they hate auctions because they feel like they are being forced to pay more than they would under normal private treaty negotiations. This comes about because of the pressure on the auction day. Also they have to do their due diligence before the auction which involves several hundred dollars to do building and pest inspections and that is without even knowing if they will be successful on the day. Many buyers will not even consider an auction property because there is no price guide.

Sellers dislike auctions because of the perceived pressure they will be under on the day to sell and also the cost of marketing can be as much as 1% of the value of the property.

Would you buy or sell a property at auction?

**laura.alamery** · 09-01-2011, 05:42 PM

I have done very well buying properties on the courthouse steps at foreclosure auction. I have used syndication to raise money for these deals, therefore I have been able to buy many more properties than if I would do it on my own.

These are my recommendations for how to go about it:

1. Find the Properties going to auction (preforeclosures) by researching the Notice of Defaults filed at the Recorder of Deeds office or legal paper.

Set up a spreadsheet and tracking system about keeping up with which properties you are following, sellers’ info, etc. – some times foreclosures are postponed and they will come back at a later date.

2. Confirm Auction - by calling the Trustee – call the day before the auction:

Is the auction still one?
What time and location?
How much deposit at auction?

3. Check Value and Determine Bid Amount

Use some easy online resources to estimate the value of the property
Look at how much comparable properties have sold for;
Check on length of time that these properties were on the market;
Cash or mortgage sales?

Determine Bid Amount

If the property is or has been recently listed in the MLS, you might be able to get an idea of the property by looking at online photos in the listing and agent’s description;
If the property is or has been unlisted for a while, you might have to drive by the property (get out of the car, walk around – either the owner or neighbors will approach you and you can get more information.)
Set a maximum bid amount you will pay for the property and stick to that (take in consideration repairs, condition and possible liens – give yourself room in case there are liens that you will have to negotiate and pay off – rule of thumb 30% less than what you think you can resell the property for.)

4. Bid at Auction

Call the Trustee the day before auction to confirm time, starting bid amount (if available) and that the auction is still on;
Be prepared with your deposit in a cashier’s check or full amount (depends on the state.)
Don’t be intimated by more experiences investors at the auction.
Stick to your maximum bid amount.

5. Take Ownership

Confirm with Auctioneer after the end of the Auction.(different States have different criteria.) Examples of payment and ownership options are:

You give 10% deposit at the end of the auction and the remainder has to be wired to the Trustee’s account by end of business day. Deed will be sent to you within 2 weeks.
You have to pay the full price and deed will be signed over the same day.
There is an owner’s redemption period in your state – you still pay the full bid amount, but the deed will be transferred after the redemption time.

Important recommendations are that you do not put any money into the property until you have received the deed (foreclosures can be cancelled for a variety of reasons, even after the auction date,) and remember that eviction of tenants and/or owners is the buyer’s responsibility.

**Maddie** · 09-04-2011, 08:58 AM

Some interesting points made on this tread regarding auctions. I have bought and sold items in the UK auction and as a seller you have the luxury of setting a reserve to stop the item or property going under then you expect or want.