Buying property at auction could be a good investment
Q: My husband has a bright idea to invest some money we just inherited in real estate by getting a great deal at a real estate auction. He says he has seen ads for these much more frequently than in the past. I’m suspicious. What’s in it for us and why would a seller want to place a property in an auction?
A: Some Realtors and lenders who are holding foreclosed properties have been using auctions as a way of making sales happen in a slow market. The process involves competitive bidding and a sale only occurs after a preset price, called a reserve, has been reached.
Sellers like auctions because those who attend are usually prepared to buy and come with preapproved financing. The competition among the potential buyers drives up the price and as long as the reserve is met, a true market value should be reached. The advantage of the seller is that the process happens very quickly and the property’s holding costs of maintenance, taxes and financing are eliminated.
Sellers who are living in the property to be auctioned like the idea that they don’t have to show the property to prospective buyers over an extended period of time. They are removed from the negotiation process and generate a higher selling price than if only one potential buyer had an interest.
Buyers like auctions because they like to determine their own purchase price. They can stop bidding at any time. They also like to know that the seller is committed to selling. This eliminates long negotiations that sometimes result in a seller having second thoughts and sticking to an inflated price. Since fair market value is usually reached, smart investments are the result. Buyers know they are competing fairly under the same terms. Buyers like the fact that purchasing and closing dates are known in advance and that they and all other budders will receive comprehensive information about the property in advance.
Realtors like auctions because they offer customers new selling and purchasing options. A list of ready, qualified buyers who are prequalified to buy assures that fast sales will actually happen and the selling price will be at market value. Agents can earn commissions as referring agent/broker, cooperating agent/broker, or as the listing agent/broker. Sales help Realtors gain market share which generates more referrals.
Your husband may actually be on to something but consider seeking the advice of a real estate attorney before purchasing your first property at an auction.
Attorney Sylvia Heldreth is a Certified Specialist in Real Estate Law. Her office is located at 1215 Miramar Street in Cape Coral.
This article is not intended as specific legal advice to anyone and is based upon facts that change from time to time. Individuals should seek legal counsel before acting upon any matter involving the law.