Property auctions can be a valuable avenue for investors looking to expand their portfolio, or individuals seeking a unique home. However, they are significantly different from traditional real estate transactions.
There are several things you may not know before your first property auction, and understanding these details will impact your bidding experience. Catch up on the most important things you didn’t know about property auctions so you can adjust your strategy today.
Starting Bids Don’t Reflect Property Value
The starting bid for a property at an auction often has no correlation to its market value. It is set to attract potential buyers, not to indicate the property’s actual worth.
In some cases, certain bidding thresholds must be met for the property to be ultimately sold. For example, if the auction has a reserve price, that is the lowest price that the property will be sold for at the auction. The bidding and sale requirements will vary from auction to auction. Read the details of any event clearly so you can prepare your budget and bids accordingly.
Buyer Beware
One of the most important details you should know before any auction is that the condition of the property will vary. Properties sold at auction are generally sold “as is,” meaning the seller isn’t responsible for any faults or issues with the property. It’s crucial to arrange a property inspection beforehand to avoid any unpleasant surprises. The value of any property at an auction comes down to what people are willing to bid on it, so don’t settle for anything less than what will work for your needs, such as operating a farm.
When buying land at an auction, it’s crucial to do your due diligence beforehand. This means visiting the property, checking zoning regulations, and researching the area. A surface-level, cursory assessment of the property could result in a bad investment, so it’s important not to rush into a purchase.
Time Is of the Essence
It’s easy to underestimate how swift the bidding process will feel when you’re in the middle of the event. Auctions move quickly, and decisions need to be made on the spot. Don’t worry; we don’t say this to scare you away from auctions, but to help you get in the right mindset beforehand. Practicing your bidding strategy and setting a budget before the bidding starts can help you stay focused and avoid emotional decisions.
Potential Risks and Rewards
Purchasing land at an auction is inherently risky but potentially rewarding. The unpredictability of bidding can mean obtaining a piece of property at a price significantly below its market value. However, it could also result in paying more than the property is worth if bidding becomes overly competitive. The key to striking the right balance lies in careful preparation, astute assessment of the land’s potential, and disciplined bidding strategy.
Not Just for the Elite
While films and TV often portray auctions as the realm of wealthy investors, you will find auctions that vary in the items they sell, and the prices that they will reach. Some auctions feature extravagant items, but property auctions feature fairly priced land that a wide range of bidders can invest in.
You can go to an auction for a home or invest in farmland. For example, our Midwest farm auctions at Midwest Land Management include farmland that you can build on or upgrade however you want. Speaking of home and land, let’s take a deeper dive into what sets those two auction types apart.
Home Auctions vs. Land Auctions
An essential detail to clarify before any auction is what type of property is for sale. When it comes to property auctions, you may be looking at land that is ripe for farming and that you can run and profit from over a long period of time.
On the other hand, maybe you’re looking for a home to buy, which you can also do at auctions. That said, knowing what type of auction you’re walking into ensures that the property is suitable for your needs when the deal is done.
Building on Empty Lots
Many people wonder if they can build a home on a piece of land they purchased at an auction. The answer is yes, you can build a home on that land, even if that land functions as a farm, too.
That said, you should keep in mind that you will need permits and may need to comply with certain regulations. Talk to a local expert to get the right documents ready when you settle on a plan for your property. Additionally, factor in the cost of building a home on the land when making your bid.
One of the benefits of buying land at an auction is the flexibility it offers. Unlike a home, land can be used for a variety of purposes, such as farming, recreational activities, or as an investment. As a land buyer, you have the freedom to pursue the opportunity that best fits your needs and interests.
Professionals Can Offer Guidance
For both buyers and sellers, navigating the auction process can be complex and nuanced. Engaging professionals, such as lawyers and real estate agents with experience in land auctions, can prove invaluable.
They can provide guidance on legalities and bidding strategies to ensure you’re neither overpaying nor underselling. Talking to agents and lawyers also can provide insights into the market value of the land based on factors like location, zoning regulations, and potential use.
Environmental Considerations
An often-overlooked aspect of land buying is the environmental consideration. Prior to bidding, you should have the land evaluated for issues like soil contamination, water availability, and potential flooding. Assessing these factors can help avoid potential environmental liabilities and ensure the land’s sustainability for its intended use.
Future Resale Potential
While land can be a great investment, it’s important to consider its future resale potential. Factors influencing this include location, local real estate market trends, and how the land has been maintained or improved.
That said, you may prefer building a farm that you can pass on for generations. No matter your preference, think about your long-term goal when bidding on any property.
Proper preparation is crucial before any auction. Now that you have a firmer grasp of many key things you probably didn’t know about property auctions, you can start bidding confidently today.
