Purchasing a luxury property through real estate auctions is becoming increasingly popular because it not only offers the buyers and sellers privacy but it guarantees that the property is sold at fair market value. In this article, we’ll go step by step through the entire bidding process of a luxury real estate auction, as well as give you tips on how to best prepare for the day.
An Overview of Luxury Real Estate Auctions
Some real estate auctions are what’s called a Sheriff’s Sale, where mortgage lenders, tax collectors, banks, etc. can collect money they’ve lost on a property, but these rarely apply to luxury real estate properties. Luxury real estate auctions are generally conducted by a private and well-established auction firm. They will supply the seller with the advertising resources they need to market their homes and sell them in a timely fashion. Due to auction firms having access to a large pool of highly qualified buyers, they help avoid a property spending too long on the market which can lower its value. Luxury auction firms prepare the property, run the auction, and take care of the full transaction once a buyer has been found.
Luxury real estate auctions function through three common types, minimum bid auction, absolute auction, and reserve auctions. A minimum bid auction refers to an auction with a minimum bid that’s set by the auctioneers. To participate in a minimum bid auction, potential buyers must meet that number to be considered. An absolute auction is what one would imagine for a luxury mansion auction, as there is no reserve price or minimum bid, and interested parties bid on a property that’s sold to the highest bidder. A reserve auction is when the seller has the power to accept or reject any offer by a buyer, regardless of its price.
Auction Luxury Homes: The Bidding Process Step-By-Step
Interested parties start by attending organized tours and private showings and open house appointments. These offer a secure way for luxury homeowners to hold showings for serious buyers so that they don’t have to have the traditional open houses that are often filled with unmotivated or unqualified parties who have no intention of making an offer.
What makes a luxury real estate auction different from the conventional buying process is that all inspection and property evaluations should be done before the auction day. All financing will also need to be prepared beforehand. Properties are generally open up to one hour before the auction begins for parties to do their final inspection.
It’s important to do due diligence on the property’s value, and have arranged all necessary financing so that the day of the auction runs smoothly and can be an enjoyable event. The auction of luxury homes ensures that all interested parties have the same set of contingencies and/or concessions, as they are set before the auction begins. This leads to a more fair and even process where the “winner” of the auction only has to bid one increment higher to get purchase the home.
The auction day will be set at least six weeks in advance to allow for property visits, inspections, and any other diligence an interested party wants to conduct. The Terms and Conditions for a property will be listed before auction day, however, new announcements can be made on the day of the sale, and they veto any previous terms stated so it’s important to pay attention while at the event.
Due to the dedicated marketing done by the auction team, a global pool of motivated buyers will meet on the day, either in person, over the phone, or by proxy, which means that these auctions tend to be competitive. However, because of the way auctions work, the home generally sells for a fair market price, one that both buyers and sellers feel good about.
Many luxury real estate auctions happen “live” in person in a ballroom or within a room at the for-sale property, or an online audition. It’s available to show up at least 30 minutes to an hour before the time of the auction, to do your final checks, ask any lingering questions, and register. In a live auction, the auctioneer or firm’s representative will explain the terms of sale as well as how the process will run. Luxury real estate auctions work similarly to any other type of auction, with bidders calling out their bids exceeding the previous offers until the highest bidder wins the property. In only a few minutes, interested parties will know whether or not their offer has been accepted. If so, the property’s auction team will walk the buyer through the rest of the process, and negotiate the terms of the sale until they finalize the contract and sign.
In an online auction, interested parties will have either looked through a digital property preview or have attended a private viewing. Through an auction film’s digital bidding platform, they can bid online from anywhere in the world. While most of these online luxury real estate auctions are not reserved, some auction firms offer bidders an SBI or a Starting Bid Incentive. This gives the winner a “discount” or credit of 50% towards their Buyer Premium or BP, which is generally 12%. Although this may seem small, in a luxury property auction the difference between paying 12% and 6% on a 10-million-dollar property is substantial.
If you are the high bidder at the auction, you will pay a non-refundable deposit immediately after closing. You will then sign a contingency-free contract which is an agreement to close on the property in the next 30-60 days. Some buyers and sellers settle sold properties in as little as one week, but it’s up to the terms that have been set for the settlement.
In-person and online auctions are becoming the new wave of luxury real estate and it’s easy to see why. Although the process of bidding on a luxury real estate auction may seem daunting, if you’re meticulous in your research, prepared with an ideal bid and your finances, the auction process is exciting and downright fun.