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How Do Real Estate and Land Auctions Work?

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Created on Saturday, December 05, 2015
Updated on Monday, February 26, 2018
by Land Century

When you go to buy land or real estate, you’ll come across a very interesting option: auctions. These auctions allow you to bid on land and real estate while often being able to save a lot of money in the process. Many major estates will be sold this way because wealthy buyers often go to auctions to buy properties that would otherwise be unavailable to them in normal listings.

Why? Exclusive properties are often auctioned and not listed through traditional a real estate agency.

Let’s discuss how these auctions work, and what type of auctions exist.

What Are the Three Types of Real Estate and Land Auctions?

There are three main types of auctions that you’ll come across:

* Absolute Auctions: These auctions do not have a final price, and bidders are allowed to continue to place bids until the auction time runs out. This means that the price of the property is not set by limitations.

* Minimum Bid: Under a minimum bid auction, the seller safeguards their sale by ensuring that the minimum bid must be met before the property is sold. This is a safeguard for sellers that ensures they do not lose money on their investment.

* Reserve Auction: When a reserve is present, the seller has more control over the final price of the sale. What this means is that the seller will be able to accept the bid, or deny it.

All of these auctions have their own benefits and disadvantages, but they’re all virtually the same in the way that they operate.

How Land and Real Estate Auctions Operate

Land and real estate auctions operate relatively the same. You’ll go through an auctioneer, which is held by either a professional auctioning company or by the government in some cases. Banks or other agencies will be in charge of taking bids.

A starting price may or may not be set, and you’ll have your opportunity to place a bid. In an auction, you’ll typically continue bidding until nobody else has outbid you. This means that bidding can last for several minutes or longer depending on how many people are bidding on the property, and in what increments.

Increments may be established, such as bidding only and thousand dollar values or higher, so that this weeds out excessive bits of one dollar more for another negligible value. And you’ll likely have to prove that you have the finances available to buy the property. Auctions that sell high-value properties may conduct a full review of your finances so they can verify that you can actually purchase this piece of property.

You want to be prepared to provide payment at the auction. Financing may be provided to per-qualified persons before the bidding starts. Property closings will be conducted in the same manner that normal real estate transactions occur, and you’ll be required to pay a commission to the auction. In most cases, the commission is around 5%.

How to Find Land Auctions?

Auctions are relatively easy to find, but they’re not held on a daily basis. You’ll first want to start out the following mediums.

- Newspapers
- Online websites
- Classified ads

Auctions, especially government auctions or bank auctions, are going to be advertised publicly. You’ll find that most auctions are held at the following locations:

- Local courthouses
- Conference centers
- An auction company’s office

There may be sparse information available on the properties themselves. This is where a bidder needs to be very cautious with their purchase because many of these properties have been repossessed from the previous owner. Owners that have had financial troubles often leave these homes or properties in disarray.

There may be serious maintenance issues that arise, and you may not be aware of them prior to buying the property. In fact, some properties do not allow the bidder to tour the property until the auction is finalized.

You’ll also want to look into the following:

* Are there any liens against the home that you will now be responsible for after buying it?
* Is the home title clean?
* What condition is the property or home in?

It’s very important for you to know that you’ll be penalized heavily if you withdraw a bid. The amount that you are penalized will depend on who is auctioning the property, and there are rules regarding withdrawing.

Benefits of a Real Estate or Land Auction

There are countless benefits to a real estate or land auction. As the buyer, you’ll benefit from the following:

* Most properties are given fair market values, and you’ll find many properties are highly undervalued.

* As the buyer, you have confidence in knowing that the seller is committed to making the sale as quickly as possible.

* Long negotiation periods are eliminated through the auction.

* Purchasing time is reduced greatly due to the auction.

* Closing dates are already set up, and very quick compared to traditional buying practices.

* Comprehensive information is usually provided on the property through what is called a due diligence packet.

While many of these properties may need repairs, as discussed earlier, they are sold for so much less than the going rate that the repairs are negligible for most buyers. You definitely want to inquire about the property for finalizing the sale, and you want to inquire about a due diligence packet that many auction companies will provide to buyers.

These packets provide insight into auctions before they occur, so you can determine which properties you're interested in prior to starting your bid. Remember, these are high-energy events and a lot of fun. You’ll find many great properties at auctions, but you’ll need to be diligent when conducting a review of the property, and there is no guarantee that you’ll actually win the bid.

If you do win the bid, you’ll go through a normal closing process before the property is granted to you. Many bids will require pre-approval before they can be placed. Auctions will often ask you for proof of pre-approval for a mortgage, or proof of finances that would cover a bid. This is done so that the auction only caters to buyers that are serious and can afford the properties listed.
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