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04/04/2014
You may have bid on an item at a fundraiser, an airfare online or a collectible offered on eBay. So why not a home?
While the idea of bidding on something was once left to auctioneers, collectors and their brokers, with the increase of online markets, choosing what you are willing to pay is more commonplace.
“With all the options online today people are more and more comfortable bidding, even for high-end items including cars,” says Rick Levin, president of Rick Levin & Associates, Inc. and a licensed real estate broker and auctioneer. “It’s not as daunting as you might think to name your own price with so much information online today.”
Typically there are open house events held before the auction so potential buyers can visit the property they are bidding on. Just like other real estate transactions, there are safeguards to protect both the buyer and the seller.
When it comes to buying and selling homes there are four common approaches to auctions.
1. Live or open outcry auction
Just like it sounds a live auction involves sitting or standing in a crowd of people all interested in competing for the same home, explains Michael Fine, principal managing broker of Fine and Co., a national real estate auction and advisory service, and past trustee of the education arm of the National Auctioneers Association. Just like in the movies or on TV, people can shout out bids or hold up their number to place a bid until going, going, gone — the home goes to the highest bidder.
A live auction, Fine says, is typically held in a general and easily accessible place such as a hotel meeting room, and interested buyers or their representatives place bids.
One of the pros of a live auction, Levin explains is the excitement in the room and the frenzy for competition. In anywhere from five minutes to an hour, depending on the bidding activity, the auction is complete.
A drawback, Levin says, is people have to travel to participate and, in areas like Chicago, a weather event or even traffic could deter potential bidders. In addition, the seller of the home typically pays to rent the hall or meeting room sometimes even providing refreshments. Sometimes an auctioneer will have more than a dozen properties on auction on the same day so sellers can split the cost of renting the space.
Levin says auctions typically are not held at the home being sold.
2. Online auction
Online auctions have gained traction and continue to grow in popularity.
An online auction includes a home being posted and potential bidders registering online to participate. Bidders are authenticated through an online auction’s system and bidders are required to provide credit card information for verification, says Levin.
Everybody participating can see what the other person is bidding and decide if they want to continue to bid and can see what the final, winning bid is at the deadline, says Fine. There is typically a “soft landing” of about five minutes to allow any final offers over and above the final bid, Fine says.
Safeguards are in place to insure bidders don’t accidentally bid, including buyer’s confirmation before a bid is placed, Levin says.
An online auction allows people to bid from anywhere in the world even on mobile devices. It also is cost effective because it requires nothing more than a set up in the computer system, Levin says.
An online auction is typically posted 30 days before bidding giving people an opportunity to register and review all the documents related to the home. An online auction usually lasts between seven and 10 days.
“The active bidding really only occurs in the final day and even in the final hours,” Levin says.
People unable to participate in those last hours can auto bid by choosing a maximum amount and what increments to bid and setting the computer to do the bidding on their behalf.
3. Combination live/online auction or webcast live auction
For those interested in the excitement of a live auction without excluding potential buyers who can’t attend the event, a combination auction can be a choice. This allows people to place bids live at the auction or over the Internet in real time to compete with those in the room.
This option is the most costly because room rentals, websites, and technology have to be set up and monitored.
4. Sealed bids
Another option for auctions is to have anyone interested provide their bid to the auctioneer in a sealed envelope by a specific deadline.
Once submitted, the bids are typically opened in private with the seller and auctioneer. This gives them an opportunity to review each bid.
Sealed bids are typically favored for larger or more expensive properties, says Fine. He says people tend to be more private about their financial transactions. This type of auction may also be used when there is a unique property and there could be a large gap in bid amounts received on the home.
After a bid has been accepted, a contract has to be signed, and a closing is still required to transfer the title on the home. Online bidders will need to provide earnest money.
Levin says no matter the type of auction, buyers are still encouraged to use their own experts, such as Realtors and attorneys, if it makes them more comfortable participating in the auction.
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