Important terms to know:
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Bid The amount you offer for a property, in competition with others at an auction event. 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.
Buyer’s Premium 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’re the winning bidder. |
Whether you’ve just started researching an auction property or you’re getting ready to participate in a live auction event, it’s helpful to know what you’ll actually be paying for.
Of course, this will depend on the type of property you are bidding on and what requirements are included (e.g., a buyer’s premium, whether the buyer has to pay all the closing costs, etc.).
Regardless of the type of property, the best advice is to have your strategy in place ahead of time. Know what the property is worth to you—given the condition, any repair costs, holding costs, or other expenses you uncover during due diligence—and bid accordingly.
Things to consider when bidding on a property
The amount you’ll end up paying if you’re the winning bidder will vary by property. But what does that actually mean?
Bank-owned (or REO):
- These properties include a buyer’s premium (typically 5% of the winning bid or $2,500—whichever is greater).
- The buyer is responsible for all closing costs.
- The seller will typically prorate the taxes, utilities, and any HOA dues (if applicable) on these properties, so you likely won’t have to pay any back expenses. The seller will also typically pay for title insurance and provide you with a special warranty deed.
Non-bank owned and foreclosure trustee:
- These properties include a buyer’s premium (typically 5% of the winning bid or $2,500—whichever is greater).
- The buyer is responsible for all closing costs.
CWCOT or post-foreclosure second chance:
- These properties do not include a buyer’s premium!
- The buyer is responsible for all closing costs. These properties sometimes come with evictions and the buyer is responsible for any costs associated with this process.
- The seller will typically prorate the taxes, utilities, and any HOA dues (if applicable) on these properties, so you likely won’t have to pay any back expenses.
Short sale:
- These properties include a buyer’s premium (typically 5% of the winning bid or $2,500—whichever is greater).
- The closing costs are split between the buyer and seller, and the final amount each person pays can be negotiated.
What about fees related to a property?
As you can see, you will be responsible for paying some or all the closing costs for each of these auction types. These costs will vary by closing or title company but average an amount equal to 3% of the purchase price.
When you’re viewing property information on a property’s page, you’ll find a section that outlines the different fees associated with the property. This helps give you an idea of what you will need to pay at closing.
The best way to figure out how much you’ll be paying for a property if you are the winning bidder is to do your due diligence. Look up as many details as you can about the property, visit the property (if possible) or drive by, and create a strategy that includes the maximum amount you would be willing to bid.
And, as tough as this is in practice, do your best to not get emotionally carried away or too immersed in the competition of the bidding process. The more you can focus on the numbers and the potential return on investment, the better you’ll do at bidding and winning an auction!