Real estate auctions usually have very different terms than negotiated sales. These differences are manifest in many ways, such as cash terms with no contingencies for financing or inspection (prospective buyers must perform all of their due diligence prior to signing the “as-is” contract), a higher required earnest money (often 10% or more), a quick closing requirement (usually 30 days or less), and a strict adherence to all bidders relying on and agreeing to sign exactly the same contract with no changes.
These strict terms often seem difficult for any but the most knowledgeable and creditworthy buyers, or those with sufficient cash resources to perform. And indeed auctions are not for buyers who are not ready to make a commitment if they are the winning bidder, as the strict terms penalize those who cannot come up with the balance of the purchase price in cash within the set closing period, or who change their minds after the auction. Auction terms are not subject to renegotiation after the fact, so only bidders willing to accept these strict terms should bid at a real estate auction.
The primary reason for these terms has to do with the fact that sellers choose auctions when they must sell the assets quickly, and when they must eliminate as much uncertainty as possible to make sure that a closing does occur and title is conveyed.
By standardizing terms and eliminating all contingencies, the auctioneer creates a level playing field where all bidders are bidding on exactly the same product. If some bidders receive extra consideration that other do not receive, then the auction could not be said to be a fair and open determinant of price.
We have found that auctions are the preferred way to buy real estate for many non-native buyers from other countries who are accustomed to dealing on cash terms. Many of these cash buyers feel that on negotiated transactions, their cultural differences result in them being discriminated against because they do not have the “insider” connections or cultural affinities that native buyers would enjoy. They are much more comfortable participating in auctions, where the only determinant of who buys is the bid amount, not who they know, or who might extend more favorable terms to another bidder.
When a seller chooses to auction an asset, they should be really ready to sell it! When a buyer buys at auction, they should be really ready to close it!
These strict terms often seem difficult for any but the most knowledgeable and creditworthy buyers, or those with sufficient cash resources to perform. And indeed auctions are not for buyers who are not ready to make a commitment if they are the winning bidder, as the strict terms penalize those who cannot come up with the balance of the purchase price in cash within the set closing period, or who change their minds after the auction. Auction terms are not subject to renegotiation after the fact, so only bidders willing to accept these strict terms should bid at a real estate auction.
The primary reason for these terms has to do with the fact that sellers choose auctions when they must sell the assets quickly, and when they must eliminate as much uncertainty as possible to make sure that a closing does occur and title is conveyed.
By standardizing terms and eliminating all contingencies, the auctioneer creates a level playing field where all bidders are bidding on exactly the same product. If some bidders receive extra consideration that other do not receive, then the auction could not be said to be a fair and open determinant of price.
We have found that auctions are the preferred way to buy real estate for many non-native buyers from other countries who are accustomed to dealing on cash terms. Many of these cash buyers feel that on negotiated transactions, their cultural differences result in them being discriminated against because they do not have the “insider” connections or cultural affinities that native buyers would enjoy. They are much more comfortable participating in auctions, where the only determinant of who buys is the bid amount, not who they know, or who might extend more favorable terms to another bidder.
When a seller chooses to auction an asset, they should be really ready to sell it! When a buyer buys at auction, they should be really ready to close it!
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