Regardless of whether you are participating in an “Absolute” auction or one with a “Reserve,” there are significant differences between buying property through an auction compared to buying in the conventional format.
When purchasing a property in a conventional manner, it is not uncommon to see deposits of two percent or less, with a time period for financing approval of thirty days. There is also an inspection period (unless the property is being purchased “As Is”) that begins the day the contract is signed by both parties (“Effective Date”) and runs for 20 days. During the inspection period the buyer must report back to the seller’s agent those items the buyer wants repaired that become the owner’s responsibility. Those repairs could run as high as 1.5% of the purchase price for functional defects, another 1.5% for repairs resulting from damage due to termites or wood destroying organisms and an additional 1.5% towards the close out of outstanding permits required in the building or remodeling process.
Although in a conventional purchase contract everything is negotiable, additional costs to the seller are commissions paid to the brokerage(s), title insurance and “DOC” Stamps (taxes) on the sale of the property.
Purchasing a property through an auction places more responsibility on the buyer being prepared prior to the auction, as the property is being sold “As Is,” and there is no inspection period once the high bid has been accepted. Typically a deposit of ten percent is expected on the day of the auction with the balance at closing; usually commencing within thirty days from the auction date. Since there is no contingency for financing or inspections once the offer is being made, it is important you (the buyer) have your financing in order and your inspections completed prior to the auction.
In addition to the purchase price, typically there is a “Buyer’s Premium” that is paid by the buyer that can be an additional 10 percent of the purchase price of the auctioned property. The “Buyer’s Premium” covers the costs of the commissions or fees paid to participating brokerages and the auctioneer. The outline below compares the costs associated with both a conventional and an auctioned property.
|Conventional Purchase||Purchase through Auction|
|Deposit||Can be as little as 1-2%||10%|
|Financing||Approval within 30 days from effective date||at closing|
|Inspection||20 day period from effective date-Paid by buyer||prior to auction-paid by buyer|
|Repairs||Paid by seller||buying “AS IS”|
|Closing||Agreed upon by buyer and seller||within 30 days|
|Commissions||Paid by seller||Paid from Buyers Premium|
* Note: Additional fees such as advertising, may apply