Property auctions can be useful, but make sure you know what you’re in for
Auctions have long been a good way for sellers to offload a property quickly or for buyers to bag a bargain. Today, however, more and more properties are being sold at online auctions. This work differently compared to traditional auctions, and it is important to be aware of the potential pitfalls before going down this route. More than 35,000 properties come under the hammer each year, according to the Essential Information Group. Many are repossessions, while others are uninhabitable, and thus only suitable for cash buyers or those with access to alternative financing.
How auctions work
Although one of the advantages of buying or selling at auction is speed, much of the work is done before the event. Buyers need to obtain an auction catalog, visit the property, get a survey done, go through the legal pack, and get their finances in order before auction day. The catalog guide gives an idea of the minimum price a property is likely to elicit, but most properties will go for more. The rise of the internet has changed property purchasing information right at your fingertips, any time of day or night.
Drawbacks of going online
Although all these sound straightforward, the Homeowners’ Alliance (HOA) has concerns about online auctions. First, the reservation fee, which isn’t like a deposit, comes on top of the purchase price is non-refundable. The potentially hefty fee is also split between the auction house and the estate agent.
Estate agents therefore often make more money from auctions than through a direct sale, even though there is less work involved. Online auctions can be so lucrative, the HOA is concerned estate agents may be pushing sellers towards online auctions due to its potentially higher returns, not because it will be the best sales channel for their property. Sellers, meanwhile, are likely to achieve a lower price at auction as the buyer will need to factor the reservation fee into their affordability calculations.
One of the reasons online auctions are the future is that we live in a digitally advanced world that seeks instant gratification. Online auctions offer buyers transparency, greater access, convenience, and mobility. The online auction experience can also sometimes give buyers the opportunity to get in early and make a winning bid before the auction starts to heat up or to compete against the clock and other bidders in a countdown towards the final call.