4 Tips For Success At Your Next Real Estate Auction
By JD Esajian on August 19, 2016
There are many investors who accumulate properties primarily through auctions. Whether you are looking at foreclosure or tax liens auctions are a great way to get discounted properties. However they can also be a source of great frustration if you do not know what you are doing. It is not enough to show up at an auction and hope for the best. Like anything else in real estate you need to study your niche and slowly become an expert in it. With the increased popularity of auctions to get good deals you need to leave as little to chance as possible. Here are five tips for success at your next auction.
- Research Property. Regardless of the type of auction the odds are the property will be sold as is without any preview. Just because you can’t see the interior doesn’t mean you shouldn’t find out everything there is to know about the property. You need to know if there are any existing liens on the title which could be time consuming or costly. You should research if there were any updates with the property on the tax record or past MLS listings. There is nothing saying you can’t reach out to the existing owner if you can get a hold of them. Getting a property at a discount may seem like a bargain but it can be fool’s gold if there are costly issues. As soon as you know about the auction date make it your job to know the neighborhood, the property and as much as you can about the current owner. If the situation isn’t right now is the time to walk away. When you take ownership it is too late to turn back the clock.
- Contact Auction Attorney. The property auction will typically be run by a real estate attorney. Much of the auction style depends on the specific state the property is located in. For tax lien auctions you can expect an attorney to handle the proceedings. Before the auction reach out to the attorney and find out exactly what is needed to move forward on auction day. In most cases you will have to bring a minimum nonrefundable deposit check regardless of how you plan on financing the property. There may be various other items that are needed by the town, attorney or seller. You don’t want to do weeks of work and not have the proper items at the auction. By contacting the attorney not only will you have some insights on what items to bring but you may be able to discover something about the property that can lead you in the right direction.
- Have A Walk Away Number. The reserve auction price is simply the starting point at the auction. This number really shouldn’t have much of an impact for you. Auction properties should be treated like any other property you would consider buying. Do you own due diligence and evaluation to give you a number you feel comfortable offering. The biggest difference is that with auctions the interior condition is the great unknown. For every auction property you buy in great condition there are probably five that are beat up and run down. This you can deal with but it is the major items that can throw your assessment for a loop. Problems with the foundation, mold and roof can quickly turn a good deal bad. You need to always consider the worst case scenario with every auction offer you make. The property risk must be worth the reward. Before you walk into the auction you should know the exact number that the property no longer makes sense and you walk away. This takes some discipline during the heat of the auction but is essential for your success.
- Have An Auction Presence. During the actual auction is where deals are won or lost. Most tax lien auctions typically have multiple properties to bid on. The room is usually fairly packed and there is a certain level of intensity in the air. How and when you bid can give you a leg up on your competition. If you really want a property you should go at it aggressively. For many people this thinking is counterproductive. They would rather start low and hope to get the property at their number. This only works very rare circumstances, if ever. By coming out of the gate strong you will eliminate many of the would be buyers who had interest. This signals that you want the property and if anyone else is interested they will need to outbid you. Many investors don’t want to get tangled up with an aggressive bidder because they don’t know where it will end up going. By opening strong you command a presence that set a tone for the rest of the auction.
It is a good idea to follow up with every property you had interest in but did not secure. You never know when you will find a property that falls out for whatever reason. By staying on top of it you may be able to secure an extra deal or two a year. You should also be ready to act as soon as the auction is over. The quicker you can get into the property and assess the situation the easier it will be to make decisions. Auctions are a great way to find properties but they will not just fall on your lap. Follow these four tips for success at your next auction.