A small but growing percentage of real estate is being sold at auction. The advantage of an auction for a seller is that the property will definitely be sold quickly, although usually at a lower price. So auctions often attract sellers who simply want to unload a property, such as a lender that has foreclosed on it, or an executor whose heirs want cash and not real estate.
Auctions often attract buyers who are looking for a deal – although auctioned properties are usually sold “as is” with no guarantees, so unless you’ve done careful homework and had everything inspected thoroughly, the property might not be as good a deal as you first thought.
Auctions require special contracts and agreements that aren’t part of a traditional real estate transaction.
Because auctions are unusual and require special contracts and agreements, a seller will definitely want to work with an attorney as well as an auctioneer.
The first contract is between the seller and the auctioneer. This should include the auctioneer’s compensation and any specific requirements such as a minimum price, deed restrictions, or a seller’s veto power over the auctioneer’s advertising materials.
The seller will then prepare an information package for bidders. This should include any documents the buyer will be required to sign at closing, such as a purchase agreement. Typically, the purchase agreement won’t include any contingencies. The buyer will be expected to have lined up financing in advance, and to have made any inspections of the property prior to the auction date.
The buyer may also be warned that he or she will be expected to put up a non-refundable deposit when the agreement is signed.
Buyers may want the information package to include a title commitment, an environmental report, or other documents.
Sometimes buyers will be asked to sign a confidentiality agreement saying that they won’t disclose the information in the package to anyone else. Buyers might also be asked to sign an indemnity agreement, saying the seller is off the hook if the buyer damages the property or suffers an injury during an inspection.
Finally, the package should provide information on price. If it’s an absolute auction, then the highest bidder will get the property, even if the bid is one dollar. The seller may also require a minimum bid; if no one makes the minimum bid, then the property won’t sell. Sometimes sellers set a “reserve,” which is a minimum bid that’s kept secret. Bidders don’t know what the reserve amount is, but if no one bids that much, then all bids are turned down and the property is not sold.
The RI real estate attorneys at Bardorf & Bardorf serve communities throughout the state, including Newport County, Kent County, Bristol County, Washington County and the cities and towns of Newport, Middletown, Portsmouth, Aquidneck Island, Tiverton, Little Compton, and Jamestown, RI.