The people who win at the auction are the people who prepare for victory well before the auction, especially for high stakes items like real estate. Preparation is key. Here are the four major steps that you need to consider so that you can come into any auction prepared to win.
Research the Properties that are Up for Sale.
You will usually be able to grab a list of the properties that are going up for sale at an auction well before the event. Get an idea of the surrounding market so that you will understand what similar properties in the area are going for. You can get in touch with a local real estate agent for these prices.
Do a Walkthrough If You Can.
If you have any opportunity to inspect the property beforehand, take it. Take a general contractor with you so that you will be able to discern any huge problems in the infrastructure and get an idea of the costs that you will take on if you buy the property. Even if you cannot get inside of the property, you can take pictures of the outside and look for any visible flaws that would require too large of an additional investment outside of the auction price.
Set Your Max Bid Well Before the Event.
If you have an idea of the market, you will be able to give yourself a better idea of your maximum bids for any individual property. With this information, you can go to any investors that you need to coerce if you are financing through other people; otherwise, you can budget your own funds so that you do not overpay. Remember that you make your money on the buy, not on the sell.
Get in Touch with the Auctioneer.
There are always some auction requirements that will throw a monkey wrench in the process. Talk to the auctioneer if you can. One of the most important things to find out is if you have the right to go back on a sale after a purchase during a grace period. Some auctions have a strict policy on grace periods, and some have none at all. You will usually be responsible for a rescission fee no matter what if you back out. Find out beforehand.
Another important aspect of auction bidding is to figure out the reserve amount that you are responsible for so that you are not caught out of bounds on the spot. You may lose the property if you do not come with the cash necessary to fulfill this reserve, and the auction may keep the rescission fee in some cases. This is a bad situation to be in, so do your homework beforehand to avoid it entirely.
Get the Funding.
One big mistake new bidders make is to low-ball the financing they need from the bank. If you need 5 percent cash to close on an auction property, borrow 10 percent. If anything, you can return the extra funds if you do not use it.