May 19, 2024


Mad about real estate

Pitfalls of Real Estate Auctions

Real Estate Auction has been growing popularity in United States. In fact, residential real estate is one of the fastest growing sectors for live-auction (according to National Auctioneers Association). Ever since there is a rise in number of foreclosed homes, this has been one of the most awaited sales of the century. 

Real estate auctions are not only a method for selling foreclosed properties. Sellers who want instant cash adapt this kind of format. It is also a good option for sellers, who want to speed up sale of property due to divorce or out of state transfer. Even estate liquidation, as in the case of a death of a loved one, may be done through real estate auction. 

Buyers may also benefit from real estate auctions. The number one advantage is price. Properties being auctions may have an initial bidding price, which is below its true market value. For people who are in investing, they can surely benefit from this kind of sale. Aside from that, if the buyer hates the complexity of a conventional home buying process, real estate auctions may be a good option for them. They have the benefit of eliminating negotiations, which can be time-consuming, as well as finding a lender (since in most cases this is already pre-arranged in most auctions). 

As you can see, auctions can greatly benefit sellers in many ways. However, it has pitfalls that can greatly be of disadvantage for the buyers. If you are an aspiring buyer of real estate auctions, knowing these pitfalls will open your eyes on the true colors this transaction. They are not bad, but if you do not recognize them first hand, you may end up being disappointed. Real estate auctions have its own set of rules in selling. Therefore, it is just right to know them, so you can also know what tactics to use to protect oneself against the disadvantage. 

For all the buyers out there, here are the common pitfalls of real estate auctions that you should be aware of: 

– Buyers cannot inspect the property all the time before they can continue with the bidding. The sale of property in an auction is not contingent to any inspections. Therefore, when you buy a property through this option, you take the property “as is”. 

– As this process eliminates negotiations process, this can also be a great disadvantage. If there are problems with the house, a buyer cannot demand for repairs or ask the seller for price adjustments, in case of structural problems or building code violations. 

– If you are the highest bidder and if your bid did not reach the reserve price set by the seller, you may not get the property at all. Reserve price is the minimum amount that the seller is willing to accept. The problem is the reserve price is not revealed to the bidders. 

– There are lots of competition in bidding. Although buyers have equal chances as the others in any auction format of sale, things may not an advantage on their part, especially if they are bidding against investors. These people can afford to splurge money just to obtain properties for investment. 

– Real estate auctions are usually paid in cash. Therefore, if buyers are not able to gather funds on the predetermined closing date, they will not get the property. On the other hand, if they opt for financing, they cannot choose their lenders. They cannot shop around as in the case of a conventional home buying process. Financing options are already set-up and interested bidders must be pre-qualified under their services.