Important terms to know:
The amount you offer for a property, in competition with others at an auction. Bidding can be done online or at a live auction. If you meet the seller’s minimum price and you have the highest bid, you typically win the auction.
The minimum amount a bid must increase during an auction. Increments are pre-determined based on the current highest bid.
Properties sold in certain online auctions require a “buyer’s premium.” The fee is typically 5% of the winning bid or $2,500—whichever is greater. This fee is only required if you are the winning bidder.
How does bidding in an auction work?
When should I start bidding? Why is the bid going up by a certain amount each time? What happens if I get out bid at the last minute? There are a lot of questions you might have about bidding in an auction.
That’s why you should put a bidding strategy in place before the auction starts so you have a framework to guide you through the bidding process. This strategy can include things like your maximum bid amount, your due diligence research, and what your total purchase price would be if you’re the highest bidder.
Once the bidding begins, you can use this strategy to guide your bids. Just make sure you’re aware of a few things that happen during bidding:
Things to consider during the bidding process
Prior to the auction starting, here are some things to include in your bidding strategy:
Minimum and maximum bid amountsTo bid, you need to submit a number that is at least as much as the bid amount that appears on the screen. This is the minimum amount you can bid.
The bidding will increase in increments throughout the auction. If you get outbid, you can submit a higher bid as long as it is equal to or greater than the bid amount shown on the screen.
Total purchase priceDon’t forget to look at all the costs that go into the purchase price of the property. This can affect what your minimum and maximum bids could be. The total purchase price is usually the winning bid amount plus the buyer’s premium, if applicable.
During the auction, here are a few things to keep in mind:
Bid incrementsThis is the minimum amount a bid must increase during an auction, usually a percentage of the seller’s reserve price.
Let’s look at an example of how bid increments work:
Let’s say the bidding begins at $20,000 and someone bids that amount. The next amount that appears is $22,500. That means the current bid increment is $2,500. You decide to bid that amount, making the new amount available to bid $25,000, which is another increment increase of $2,500.
Of course, if you don’t want to deal with the back and forth of bidding in increments, you can submit your best and final bid (aka the highest amount you are willing to bid) as long as it is higher than the current bid amount.
Extra time addedIf someone places a higher bid than you in the last five minutes of the auction, the auction time will be extended by an additional five minutes to allow you to place another bid.
There’s a lot to think about while bidding on a property. Some of that is out of your hands, but stay focused! Follow your bidding strategy and stay engaged until the end of the auction, even if you get outbid. You never know whether the winning bidder will actually end up purchasing the property.
And remember, a property can go through multiple auctions before being sold—so you may still have a great shot at winning the property you’re interested in during another auction.