I want to go to an auction. What should I know before I bid?
Understand the type of auction you are participating in (absolute, reserve, etc.) and make sure to review the complete terms and conditions of the sale. You will want to arrive early to register for the auction. Certain auctions (i.e. real estate) may require a cashier’s check or other payment in advance of the auction to qualify you to bid in the auction.
If you are attending an auction with a live element, you will want to bid in sync with the chant. You should be listening closely and following the increasing bids. Remember: The number the auctioneer is repeating is where the bid is and what the auctioneer is now accepting.
Can I attend an auction and participate and be a spectator without bidding?
We encourage people to explore auctions by attending one as a spectator. There is no better way to learn about auctions than to watch one firsthand.
Who is the person yelling in the audience at an auction?
The person you see and hear working amongst the crowd of bidders is known as a bidder assistant. This individual is part of the auction team and is an extension of the auctioneer. The job of the bidder assistant is to convey bids back to the auctioneer from the crowd.
When bids are received in the crowd, the bidder assistant will signal verbally or by hand to the auctioneer that they have received a bid and to increase the bid amount. These individuals are also there to help answer questions you may have while the auction is being conducted.
What is the auctioneer saying?
The art of perfecting the auctioneer’s chant can take years of practice, but understanding what auctioneers are saying is simple. The auctioneer’s bid call can be broken into two parts:
- Statement (The Current Bid) – I’m bid fifty dollars.
- Question (The Next Bid) – Would you bid seventy-five?
Example: I have 50 dollars, would you bid 75, would you bid 75? Now 100, I have 75 dollars, would you bid 100...
If I scratch my nose or wave at a friend, will the auctioneer think I am bidding?
We hear this misconception a lot! In fact, to bid at an auction or for your bid to be received by the auctioneer, you typically need a bid paddle or bid card. You will receive this bid paddle or card at registration and it will have a number on it. This number allows the auction company to know who is bidding from the list of registered bidders.
If you mistakenly bid or the auctioneer misinterprets your movement as a bid, immediately notify either the auctioneer or their staff.
The cadence and repetition of words and use of “filler words” vary from one auctioneer to another, but the format is usually the same. Always remember that the number the auctioneer keeps repeating is the dollar amount they are wanting.
How do real estate auctions differ from traditional home sales? It’s not as different as you might think.
We know what you might be thinking about real estate auctions ... aren’t those just foreclosures and dilapidated, distressed houses? How do I even bid on a house up for auction? What does the buying process look like? There are numerous misconceptions about why a property would be sold at auction and how you, as a buyer, can participate. Let’s try to clear some of those up.
Why do properties go up for auction?
Often when people think of real estate auctions the first assumption may be a situation of financial distress. Yes, some homes that go to auction are a result of a foreclosure or bankruptcy. Auctions are a timely method for banks or courts to convert real estate into cash. Foreclosure auctions do happen and typically have the most restrictive terms where buyers must pay cash and do not have an opportunity to view the property or have it inspected. While these auctions are a part of our industry, they are definitely misleading the public into believing this is the only reason real estate sells at auction. In fact, some real estate websites refer to all auctions as foreclosure or pre-foreclosure, which is far from accurate.
However, the overwhelming majority of property sold at auction has no financial distress and is direct for sellers who have chosen the auction method. Everyday normal sellers looking to sell their home or property are choosing auction as their first choice. Sellers choose auction for a variety of reasons. Auction offers a timely transaction with a fair and level playing field for all buyers to compete and participate in determining true market value. Sellers are opting for a transparent process that doesn’t involve lengthy negotiations and contract contingencies.
For many years auction has been a preferred method for selling agricultural and rural properties, as well as estates and senior transitions. Across the nation more and more pieces of residential, luxury, commercial, farm and ranch, and investment property is trading at auction.
Top reasons buyers like buying through auction
Transparency – When buying at auction you know exactly where you stand. You’re either the top bidder or you are not. In markets where sellers are experiencing multiple offers, the buyers are somewhat left in the dark. On the traditional market when you make an offer on a property you don’t know how you compare to the other offers on the table, but at auction it is very clear if you are in the lead.
Fair and level playing field – All buyers are participating under the exact same terms and conditions. No buyer has an advantage over another based upon if they are getting financing, asking for inspections, home warranty, early possession, or all the other contingencies we see. Auction eliminates the closed door negotiations that can leave some buyers at a disadvantage.
True price discovery – In real estate we all hear the term “market value,” but how do you determine what true market value is? Is it what the real estate agent says? An appraiser? Tax assessor? How much the property next door sold for? Those are all professional estimates and tools to give an approximate value, but true market value is what the public is willing to pay for a property. When marketed effectively and open to all members of the public, an auction is a very true form of price discovery. Buyers can feel comfortable they didn’t overpay for a property when they know there were others in the market just one bid away.
Get familiar with the process
Auctioneers provide terms and conditions for participating in an auction. The terms and conditions may sound as if most buyers couldn’t participate, but understanding them will likely make you feel more comfortable. Here are some of the common terms.
“CASH” – Auction terms may include that there will not be a contingency for financing, or in other words state that it is a “cash” transaction. This may come across like a barrier that buyers feel like will rule them out of the process. Not necessarily! This often just means that the sales contract will not be contingent upon the buyer obtaining financing, but it doesn’t preclude them from doing so. If you need to get a loan, go prepare with your bank ahead of time and determine what your borrowing capacity is before participating in an auction. For some companies, about 60 percent of buyers that purchase at auction do obtain some sort of financing.
“AS-IS” – This is another common term that sounds scary. Again, this just means there will not be a contingency to negotiate repairs, but likely you are welcome to preview the property or have a full home inspection if you desire. A home selling in its “as-is” or present condition doesn’t mean it’s in bad condition. Some of the most immaculate and well-maintained homes are sold “as-is.” At most, real estate auction buyers have the opportunity to schedule a showing and complete inspections prior to the auction. Buyers are encouraged to thoroughly inspect the property prior to auction and adjust their bidding accordingly for any defects of deficiencies they may have found. Often sellers provide disclosure reports, just like they do in traditional listing transactions. Sellers still have an obligation to share any known condition issues with the buyers. Sellers may just not want to go through the additional negotiations and repair requests that are a part of traditional sales method. Auctioneers want buyers to be comfortable with the property and have a chance to fully look it over ahead of time to make a good purchasing decision.
“30-DAY CLOSING” – There will be a term that references the amount of time a buyer has to close on a property. Often 30 or 45 days is allowed from the time of executing the sales contract to actually having the final closing. This timeframe does allow for buyers to financially prepare for closing, whether that is moving around funds or securing a loan. This timeframe is important to communicate to a lender to make sure they can accommodate a loan. Sellers like the certainty that comes with knowing an auction date and a closing date; it is helpful when making plans for their future.
“NON-REFUNDABLE EARNEST MONEY” – Earnest money is the money you put up in earnest, or in good-faith, that you will perform on the transaction. This is often non-refundable at auction. Your earnest money is deposited at the time of contracting and goes toward your final purchase price at the time of closing; if you do not perform on the contact, the earnest money would be forfeited. This is all the more reason you should be prepared financially and comfortable with condition of the property before buying at auction. Earnest money amounts fluctuate. Some auctioneers use a percentage of purchase price and others use a fixed amount. Make sure and consult the marketing materials to be prepared for the amount you will need to put down.
Other than the terms listed above, most other terms of buying real estate at auction are the same as buying on the traditional market. Most auction properties come with clean and clear titles, with title insurance and title company expenses shared between buyer and seller. Real estate taxes are typically prorated to the day of closing so buyers and sellers are paying their appropriate share of expenses.
Another big misconception is that a buyer can’t use their real estate agent to represent them. Most all auction companies offer cooperation and compensation to real estate agents. This will also be included in the terms and conditions. Most companies honor and respect your relationship with your agent and are happy to include them in the transaction.
Are auctions only for distressed or discounted property?
This is a major misconception about auctions. The fact is auctions are the primary sales method when selling valuable assets such as vintage vehicles, multi-million dollar homes and priceless pieces of art. The competitive bidding of an auction and the bidding of prospective bidders sets the price and market value of an asset.
The item will not sell for more than the highest bid and will not sell for less than the high bid. You, the consumer, and other bidders determine the market value of an item when you buy at auction.
A Buyer's Guide to Real Estate Auctions
What are the differences between an absolute and reserve auction?
There are two different type of auctions: those with reserve and those without reserve (sometimes referred to as absolute). NAA Auction Professionals should consult with their seller(s) to determine the best method suited to the seller.
- Absolute Auction: An "absolute auction" is an auction where the property is sold to the highest bidder. There is not a minimum or reserve price that must be met to complete the auction sale.
- Reserve Auction: A “reserve” auction means that a price has been set between the seller and the auctioneer that must be met to complete the sale. Reserves are often used to provide the seller with security that they receive at certain amount of money to meet their sale goal.
What is a Buyer’s Premium?
A buyer’s premium is commonly used in auctions today as a form of payment for the auction company conducting the auction. The buyer’s premium is an advertised percentage of the high bid or flat fee added on to the high bid to determine the total contract price to be paid by the buyer.
What does “As is, Where is mean?
One of the most common statements made at auction, “as is, where is,” simply means the property is being sold without warranty and that there are no contingencies based on the status of the asset being sold. It is important that you inspect all auction properties before you bid, both real estate and personal property.
Photos may not show all the details or potential faults with the asset and it is your job as a well informed bidder to thoroughly inspect and know what you are bidding on BEFORE the start of the auction. Once you bid and buy an asset at auction, you are the new owner.
Can I inspect the property I am interested in bidding on before the auction?
We encourage you to view the property before auction day. Due diligence on the part of the bidder is important with auctions. Contact the auction company managing the auction and inquire about times when open houses will take place, as well as any paperwork available on the property. Auctioneers want you to feel comfortable on auction day. Always feel free to call and ask questions.
What is a minimum bid?
Minimum bids are routinely used at auctions to provide prospective buyers with an initial price range of where bidding will begin. If an auction has a “minimum bid” of $50,000, prospective bidders will know that the auction will start with an opening bid of $50,000 and that the asset will not sell for anything less than $50,000. Oftentimes, auctions are advertised with an “opening bid”, but this should not be confused with a “minimum bid”. An “opening bid” simply means a price where the bidding opens.