There are two types of real estate auctions, bank foreclosures and house auctions. Both are very different, neither is easy.
Most the time when we think of real estate auctions we think of bank owned foreclosures. That is not always the case, though. Some owner occupied properties have found success through house auctions, as well. The best candidate for this method of sale is a hard to sell house that has unique properties that do not appeal to, or hold value for, other people. A good example of this is your average 1500 square foot house with custom book cases, a full service kitchen built onto the back deck and an indoor recreation area with a built in swimming pool, shower area, bathroom, and wet bar.
Although these items may sound delightful, most buyers are not keen on paying the significantly upgraded price, as compared to other homes of the same style and size that has accumulated from all the customizing. The seller of such a house has to understand that although it is plain to see how much money was put into the upgrades; buyers just don’t want to pay the price unless it is the exact thing they have been looking for. The Seller takes part in a house auction hoping to gain a lot of exposure quickly and find someone who appreciates the eccentricities of the house. With a home auction of 8 or 9%, compared to the 6% of a regular real estate company, the house auction method of selling a home is not always the best option for home sellers.
Bank foreclosure real estate auctions are altogether different. To begin with, their chances of selling are slim. Being that the house was defaulted, the house likely has thousands of dollars due in delinquent taxes, water bills, and special assessments in addition to the amount owed on the mortgage. The minimum bid is usually set, by the bank, to include these costs as well as all foreclosure and attorney fees. Rarely does a house go through auction that is actually worth all that is owed upon it.
The negotiation process is quite different between house auctions and bank foreclosures. With a house auction, buyers are bidding against other buyers. There is probably a reserve that must be met or no sale will be made, but basically the deal is made to the highest bidder. In contrast, bidding in a bank foreclosure auction, a buyer is bidding against the bank and buyer and bank will counter offer back and forth until terms are met or the buyer quits negotiating. The banks are tough and not really expecting a sale at auction, anyway, so any ideas on a buyer’s part that they can bully a bank and the bank will be happy to be rid of the house, are way off track.
The amount of pressure involved in both scenarios make real estate auction buying and selling an activity reserved for a certain type of person. There is a lot of stress involved with buying a house at auction from a foreclosure bank as bidding with the bank is frustrating and the house is always sold in “as is” condition so you cannot be sure what you are looking at for repairs until after the sale is made.
The pressure of the individual seller at a real estate auction comes into play as the bids come close or at the reserve price. When to cut your losses is a tough decision because whether or not the house sells, the auctioneer must be paid. Additionally, with the public now having the pricing information of the house, it will be difficult to get higher bids at a later auction or through a conventional real estate negotiation. It is wise to explore other options before deciding on a real estate auction.