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Buying LandSelling Land

What First-Time Buyers Need to Know About Auctions

December 4, 2018

Auctions can be a good way to sell a property and make a little extra money as a seller. As a matter of fact, in 2009, a time when the economy was headed into a recession, almost 60 billion dollars of property was auctioned. Many sellers found an excellent way to sell distressed properties during that time to eager buyers looking for a deal.

There are three main types of auctions:

1. Absolute Auction
An absolute auction sells the property to the highest bidder, no matter how little the bid. The seller cannot bid for his own property at an absolute auction. Absolute sales help to coax out the best price from a buyer because they have the knowledge that the property will be sold regardless. However, they are a high risk to the seller.

2. Reserve Auction
Another kind of auction is an auction with reserve (or reserve auction) which lets an owner decline the high bid without explanation. Unless an auction is advertised as absolute, assume it is an auction with reserve.

3. Minimum-bid Auction
The last type of auction is the minimum-bid auction. This is one where the seller has established a minimum sale price; if the top bid falls short, the property does not sell. Generally, auctioneers prefer absolute auctions because they always produce a sale and commission, no matter how small.

What You Need to Know

Auctions can contain several different terms and conditions. An “as-is” sale, for instance, is a sale where the seller of the property offers no warranty as to the condition, and will not fix any problems. In theory, it could also mean that all defects are not disclosed, though it shouldn’t. The term “no contingencies” can mean that the winning bidders are not allowed to insert contingencies or change terms of the purchase contract they sign at the auction’s end.

Something else to keep in mind is that financing must be in place, and available within 15 to 30 days, for closing. Some auctions even have lenders on site for financing. The bidder must know everything there is to know about the property or risk losing a deposit of 10% or more to back out of the contract.

Auctioneers sometimes encourage sellers to divide a larger property. By doing this, the auctioneer is able to auction off each parcel, then bidders are allowed to combine parcels however they want, and finally, the property is bid as an entirety. Auctioneers hope to boost the final price and keep bidders fighting over different arrangements. This process can be very confusing and cutthroat for many first-time buyers, so it’s always recommended to have a lawyer look over these contracts.

Bidders should also understand the rules of an auction, which are announced just before the auction begins. These rules trump any other rules advertised prior to the auction.

Auctions are usually videotaped for legal record.

Bidders are allowed to ask questions before an auction begins. Some helpful questions to ask are:

  • Is the auctioneer, his associates, or owner bidding? (If so, identify them)
  • Does the seller know of any defects to the property that would harm the buyer’s use?
  • Does the seller guarantee that the title is defect free?

Know what your maximum bid, or red price, is before going to the auction and stick to it. Bring a friend to observe other bidders and gauge their interest. Inexperienced bidders should take caution. Do not be too focused on beating the competition, instead focus on the object to be sold. Remember, auctions are to benefit the seller, not buyers (though buyers can find good deals). For first-time buyers at an auction, the 3 R’s can help greatly: Research, Rationality, and Red Price.

If you want to find out more about auctions, get in touch with one of our National Land auction experts by calling us at (855) 384-5263 or by sending us an email at info@nationallandrealty.com.

Find the National Auctioneers Association’s Code of Ethics at www.auctioneers.org.

About the Author
National Land Realty specializes in farm, ranch, recreational, timber, country estates, and commercial development properties. We’ve created the world’s best way to buy, sell, lease, and experience land. One seamless hub of knowledge, unprecedented data, and game-changing technology— accessible from anywhere. Our agents offer local expertise, with the support of a national network.