In the first part of this series we discussed five things to consider when purchasing an investment property at auction. In the second part, we will be discussing the advantages, disadvantages, tips, and red flags for both online and offline auctions.
Read the first part in this series by clicking here.
6| Advantages and Disadvantages
When buying property at auction, you might get a good deal. Purchasing and closing dates are known, and there won’t be any long negotiations. “The sales process is transparent and straightforward – either you are the high bidder and winner, or you are not,” says Sharga. Bidding online is easy and convenient; all of the information about a property is at your fingertips.
On the downside, since contracts are non-contingent you have to be sure that you have sufficient funds to close the transaction or else risk losing your deposit.
In addition, there can be less time for due diligence. Some people may dislike the quickness of the bidding process.
“You could pay too much,” Brewer says. “Or you could get outbid.”
7| Online vs Off-Line Auctions
There are pros and cons to off-line and online auctions. At a live auction, you physically get to see what you’re bidding on and who you are bidding against. “For some people, this transparency is important,” says Shuman, who serves on the National Auctioneers Association Board of Directors. “For others, the ability to bid from the comfort of their home offsets any advantage of attending an event.”
Online auctions often cater more to investors who are looking for better pricing — so buyers may get a better deal, Haghani says. But buyers may have more competition because bidders can be anywhere. And generally have less information about the competition (i.e., who they are and how many there are), so it is less transparent.
The big advantage of online auctions is having the ability to bid on a property even if you can’t be physically present.
On the other hand, the ability to bid in smaller increments isn’t always an option with an online auction, which may have them set at $5,000 steps, for example.
8| Red flags
To ensure that an auctioneer is legitimate, ask if he or she is a member of the State or National Auctioneers Association. Auctioneers who are part of the association have agreed to a code of ethics. Beware of new companies and new auctioneers; watch them for a while before bidding at their auctions.
Be on the lookout for fake bidders. Brewer has seen someone place a bid and then withdraw it, which drives up the price. “This is often done on a reserve sale, where the seller will not take less than a certain amount,” he says.
9| Tips for On-Site Auctions
- If you’re new to auctions, start out by going to a smaller one. Even if you don’t bid at your first event, you’ll be able to see what takes place and what type of people attend.
- Try to meet everyone there. This allows you scope out who is the “real deal,” and also allows you to establish yourself as one in their eyes.
- Even if an auction at first glance doesn’t appear to have any properties you think you would bid on, it often pays to register anyway. Sometimes a property is added at the last minute that could be just what you’re looking for.
- The back of the room may offer you the best vantage point for bidding. You can see who you’re bidding against – or in some cases, see that you’re not really bidding against anyone.
- Some experienced bidders say it’s best to wait on making your first bid until everyone else has made the final one. That is, when the auctioneer says, “Going once … going twice …” then THAT is the time for you to jump in.
It is not too late to jump into the real estate investing game. Just make sure you do your due diligence and make the right choices for your personal and business goals.