Sold …to the highest bidder! If you’re in the market for purchasing real estate, you may want to consider the benefits of an auction. Real estate auctions are an accelerated process for buying properties through public sale, with many potential benefits to the buyer. Here are some of the points to consider if you want to buy land at auction:
Commitment to Sale
Real estate auctions take the stop, start, false-start out of the land buying process because sellers are committed to the sale. Purchasing property is an important investment, and buyers often invest a lot of time and resources into researching and conducting due diligence. So when sellers delay or even back out of the sale during the process (sometimes to sell to a higher offer), it not only can be frustrating, but financially costly. Auctions take this uncertainty out of the buying process, with sellers who are motivated to sell a property on a specific date. Buyers have the ability to conduct due diligence ahead of the sale, and have the confidence that the sale will move forward in an expedited manner. Whether you’re purchasing a lot for your personal home, or are a developer or builder looking for land for your next project, knowing that the seller is committed to the sale can be invaluable.
Timeline
Auctions make the process of buying lots and land faster. If you’re ready to make that right purchase, whether land for a development project, acreage for your family’s vacation retreat or an investment property, a real estate auction may be the right way to move forward without a drawn out sales process. You’re able to conduct your research ahead of the sale; you know the date of the sale, and the timeline for closing, which is often 30 days or less. This is an accelerated process that is in contrast to the usual traditional lot or land sale.
Level Playing Field
In an auction, all the buyers are operating with the same information and bidding at the same time, competing fairly with the same terms as all the other buyers. Unfortunately, the traditional sale process is sometimes less transparent, influenced by parallel negotiations, relationships and reputations, and can lead to unfair practices – whether intended or not.
Negotiations
Real estate auctions eliminate the hassle of negotiations that can drain your time, resources… and sanity. Auctions allow the buyer (and seller) to understand the terms and conditions of sale from the outset. The time and date of the sale are set, as well as the timeframe for closing, the amount of earnest money deposits required and so on. Typically buyers are provided with comprehensive information on the property with a due diligence packet. This allows you, as the buyer, to come to the sale prepared to buy the land at auction on known terms and thus avoid the hassle of negotiating.
Options
Multi-property auctions allow buyers to see several offerings in one place and compare. When you plan to buy land at auction, observing the bidding on a similar property may give you more insight into the value of the property in which you are interested. If you are interested in considering multiple properties, an auction may be an ideal buying process for you.
Price
The intention of an auction is to arrive at a true fair market value for the property you are buying. The nature of the competitive bidding process encourages smart investment, where buyers are able to get a real-time sense of the market value. Especially for distressed properties, this may mean that you are able to secure a property at a discounted price given the current market conditions for that particular parcel. Even with non-distressed, unique or premier properties, real estate auctions help buyers arrive at a true market price, not the price that a particular seller (who may have an inflated, emotional, or just plain ridiculous opinion) may set for the property. We do recommend that you determine the maximum price you’re willing to pay for a property before you start bidding to buy land at auction, since the auction process can be intense and exciting. You don’t want to get caught up in the competition of outbidding other buyers and end up paying more than you intended…or can afford.
If you are interested in exploring the use of an auction to buy your residential lots or land, we at LotNetwork.com encourage you to research auction sales and perhaps talk with a real estate professional who is experienced in auction sales. There are national companies and local auction houses, online auction services and traditional companies and brokers who specialize in these types of sales.
Terms to know related to real estate auctions:
Absolute auction: This is an auction in which the seller agrees to accept the high bid, no matter the price. This is not always seen in real estate auctions because many sellers have costs they need to clear or a minimum profit they’d like to make. If the seller is highly motivated to rid themselves of the property no matter what (like a bank, for example) – or if it’s inherited or otherwise a property that’s “free and clear”, the lot or land may be offered this way.
Minimum Bid: Sellers often set a minimum bid price to ensure that the sale at least covers the costs owed or to prevent buyers from colluding to purchase the property at a deflated price. If the seller has a large amount of equity in the property and sets the minimum price well below market value, this can spur great interest from buyers. However, if the property is unique or otherwise difficult to price, market value will be a matter of perception. A minimum price that is too high – in the eyes of buyers – will drive off some bidders and may prevent you from being interested in buying at all.
Selling with Reserve: The seller maintains the right to reject any and all bids, so its important to consider when bidding to buy land at this type of auction. This can mean that the seller has a minimum price in mind, but didn’t necessarily publish. Selling with Reserve also can mean that the seller reserves the right to bid on his own behalf (or on behalf of a lienholder) during the auction sale.
LotNetwork.com regularly has real estate auctions for land and lots listed on the site, so be sure to look at auction properties too when searching. And if you choose to pursue purchasing residential lots and land at an auction, we wish you the best!
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Related Resources:
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In addition, be sure to read our series of articles about the 8 Tips for Buying Lots and Land, so you can know what to look for (and what to avoid) when buying a lot or parcel of land.
And check out our resource pages with tips and information on the following topics:
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Quite an informative article. Buying a house or commercial property through a auction is a big bet. You need to be sure of all the things involved in the auction. Most of the auctions sites nowadays have their own auction websites and all the terms and conditions are very clearly mentioned in these sites. Going through all the rules and regulations and carefully checking all the legal documents associated with the deal is a must. Also, knowing the terms related to the auction is important to avoid confusion.
Great points! As with any purchase, do your due diligence and understand the terms for the transaction.