Asset Management & Recovery: Posted By Demand - Auction Buying Tips

Below is an article that I wrote for an investor group newsletter.  Hope it helps everyone understand a little better.

Auction- auc·tion (n) a sale of property to the highest bidder. Websters

For centuries Auctions have been the ultimate mechanism for establishing values and facilitating quick and fair exchanges of goods and property all over the world.  Recorded history describes auctions as early as 500 BC and auctions were said to be the primary means of sales throughout the Roman Empire. 

Considered at one time to be appropriate only for distressed property, a larger percentage of the value of real estate and commercial assets are being sold at auction than ever before.  Some studies suggest that by 2010, close to 30% of all real estate sales dollars will be generated by auctions.

Buying property at auction, whether it is real estate or personal property (cars, antiques, etc.) involves a couple of simple steps.  First you need to find the auction.  You just need to know where to look.  Second, you need to be aware of the terms and conditions of auction.  Third, you need to attend the sale.  This sometimes is not required, though, since many auctioneers sell online too.  Lastly you will need to attend the closing, just like a traditional sale, with some modifications.

In order to make money buying at auction the first thing you need to do is find them.  These days, almost all auctioneers have their own website and their own mailing list.  Registering for an auctioneers e-mailing list is by far the best way to find out about auctions.  In addition, many auctioneers also sell property outside of the auction or before the auction.  Some items are only advertised to the members of the mailing list before they are sold.  In addition to the e-mailing list (many don't send in the mail anymore) you will want to stay on top of your newspapers.  In Columbus, auctions are advertised in the Sunday Dispatch Auction Section, Daily Reporter Newspaper, Business First and Tradin' Times.  It is also good to register with other websites such as http://www.auctionzip.com/ and http://www.nationalauctionlist.com/.

Now that you know where to look and you have found property that you like, it is time to find out about the terms and conditions of sale and conduct your inspection.  Usually, the property is open for inspection only at specific times.  If you miss the inspection period, you might not be able to get inside before bidding.  Some typical terms of sale will likely include that you are buying the property AS-IS, your deposit will be non-refundable, the purchase is 100% non-contingent, you may be required to pay all closing costs including title insurance and closing will be within 30 days, sometimes less.  Typically, terms and conditions are posted to the auctioneers website well in advance of the sale and are always provided when you register at the auction.

Brokers planning to represent a buyer at auction should also make themselves familiar with the terms related to brokers as they are quite different from a general brokerage situation.  It is typical for auctioneers to require the broker to register the buyer with the auctioneer at least one day before the auction and also attend the auction with the prospect.  Additionally, the buyer co-op is not always 3%.  Lastly, not all auctioneers will allow a licensed agent to receive a commission if they are also the buyer.  It should also be noted that not all real estate auctioneers are Realtors, so you can't always count on MLS.

If you have gotten past inspecting the property, understanding the terms and want to bid at the auction there are several options.  The most common is attending the sale in person, but bidding live, online, is becoming more popular.  When you arrive at the auction site you will usually be required to complete a registration form that outlines the terms of sale and requires you to acknowledge them with your signature.  Sometimes, if a deposit is required in the form of cash or certified funds, the auctioneer will request that you present these funds for verification as part of registration.  Following registration, the auction will begin, the auctioneer will solicit bids and ultimately the high bidder will be determined.  Right there, on the spot, the high bidder and the auctioneer will complete the purchase contract and the high bidder will remit the deposit funds.  In some cases, the seller has already signed the contract, yet most times the auctioneer will need to acquire the sellers signature and then fax or mail you a fully engaged agreement.

Following receipt of the sellers signature, the next thing the auctioneer will do is send the completed contract to the sellers preferred closing agent who has already conducted a title search and is prepared to close extremely quickly.   Since the title work has already been completed pre-auction, closing can occur even the same day, however some buyers do take the entire 30 days allowed under the contract.

Following the closing, you own a new property at a price just one bid higher than the rest of the crowd was willing to pay.  Congratulations.