So, you’ve decided you’re interested in buying land in Georgia and you see an auction coming up. No problem right? Well, maybe or maybe not. Real estate auctions can unquestionably be a place where one can find great deals on land. They can also be a bear trap for someone who has little experience with them. So what should you know in order to be successful at an auction?
The first thing I would tell anyone who is interested in buying land or acreage at an auction is that they are not for neophytes. Auctions are fast paced and can be confusing for someone who has not been to them before. The auctioneers are there for one purpose, and that is to get the highest possible price for the sellers. As such, their concerns are not your concerns. In fact, as your interest is chiefly to buy property for as little as possible, their interests can run contradictory to yours. Don’t misunderstand me, I’m not saying auctioneers are bad guys, just that you need to do what is necessary to prepare yourself to represent your own best interests and not rely on the auctioneers to do it for you.
So what are the steps one needs to take before attending and attempting to buy property at auction?
There are many tips for successfully bidding at auction. The easiest way to approach it is in three steps, before the auction, during the auction and after the auction.
The most important time when contemplating bidding at an auction, are the days prior to the auction. You MUST do your homework on the property coming up for auction. Properties sold at auction are almost always sold as is. If you are the successful bidder there is no “right to request repairs” or “due diligence period” as you often see in Georgia residential real estate contracts. If you’re the high bidder, you’re saying that you are buying it, period. You will tender your earnest money at the auction and you are typically expected to close within 30 days. If you don’t close for ANY reason short of title defect, you will lose your earnest money. You are buying it as is. So take some time before the auction to visit the property. Often times, the auctioneer will have predetermined times to visit and inspect the property, particularly if there is a residence or other improvements on the property that are usually locked. Look for problems or issues that you might need to know, or that may cause issues for you and your intended use. Is the land high and dry? Is it swampy? Is there reasonable access? Is there power available at the property? Is there timber value? Easements or other encumbrances? Is there anything to make you think there might be environmental concerns, such as has there ever been dumping on the site? Once you have this information you can begin to make an educated opinion as to whether or not you truly want buy this property or not.
The second thing to consider when buying real estate at auction is, what am I willing to pay for this property? This is an important step that many people will ignore before going to an auction. Once you have done your initial homework on the property and decided it is in fact something you would like to own, you need to do some more research on what the property is worth to you. Consider the things you looked at when determining whether or not you even want to buy the property. Many of these things also effect the value of a tract of land. Go to the county courthouse, or to the Georgia Superior Clerk of Courts Cooperative Authority (This is a fee based service, but it is quite cheap and if you do a lot of research on real estate it’s worth its weight in gold) and qpublic’s Georgia Assessor’s sites to access deed records, tax data and assessed values. Look and see what other property around it and similar to it has sold for in recent years. Then, with this information in hand, look at your own budget and determine what you are willing to pay for the property. (In acreage tracts, I would suggest figuring it out on a per acre basis as this is how the bidding usually is done.) Once you determine an amount that you feel good about, remember it, and absolutely stick to it.
The next thing to do before attending the auction is basic prep work dealing with the auction itself. First, if possible request a copy of the contract you will be signing before the auction. They are usually extremely basic and for someone who has a good deal of experience with real estate contracts in Georgia, you should be able to glean an understanding of exactly what you are agreeing to. Here is one example of an auction contract. If you’re not comfortable in this, take it to a Real Estate attorney. Under any circumstances, know what you are agreeing to when you sign the contract. The auctioneer is going to expect you to sign it when the auction is complete. This is not the time to wonder what in the world you’re actually promising when you sign on the dotted line. Some typical things to look for in the contract would be such things as are the mineral rights included; timber rights? Will there be a new survey required, and if so who bears the cost and what will it be? How will the property be conveyed; limited warranty deed, warranty deed, etc.? When will you be expected to close and do they have a requirement on which attorney will do the closing? What is the amount of the buyer’s premium? Often the terms in these contracts are non negotiable so make sure they are something you can live with before bidding because you most likely won’t be able to alter it after you’re the high bidder.
The next thing to consider is how do you plan on paying for the property? Will you need financing in order to purchase the tract? I can’t say that I have ever been to an auction where the contracts had financing contingencies in them. Such a thing may exist, I just haven’t seen it. As such, if you are the high bidder once you sign the contract, you are pledging to buy the property and any illuminations later that you can’t obtain financing won’t save you from the loss of your earnest money at the least. So it’s best to get a very strong indication on your ability to borrow before you ever make the first bid. I usually see lending institutions present at these auctions by invitation of the auctioneers, but I would think the most prudent course of action is to make sure beforehand of your ability to obtain a necessary loan, than after you’re the high bidder.
The last thing I would recommend is to understand before the auction is how the auction will be conducted. All auctions are not conducted in the same fashion. For example, the first point to understand is that there are two primary types of auctions. Absolute auctions being one, and what I call “Reserve Auctions” or an Auction with Reserve. An absolute auction is one in which the property will be sold, no matter what the value of the high bid. A reserve auction is one in which the seller has the right to render his own bid (thus the reserve). In an auction with reserve, if the high bidder has tendered a bid price that is insufficient to meet the seller’s needs, then the seller tenders his own bid above the high bidder and the auction results in no sale. Often times, auctions will contain many properties, with some being sold absolute and some with reserve.
After you determine how the properties in question will be sold, it is best to familiarize yourself with the rest of the procedure for the actual auction. I’ve seen it done several ways, but I’ll describe the process that I see most often here.
When it is a single large tract being auctioned, typically the auctioneer will determine a reasonable way to divide the land tract into smaller parcels on paper in a way that the county will approve. Then, after completion of the auction, the tracts will be surveyed as needed and recorded. (For example a 500 acre tract may be divided into 13 tracts of varying size on paper.) If it is mainly smaller tracts, they may be auctioned without division. The idea here is to create a number of different parcels to bid on, to thus increase the overall bid price. Then the auction will proceed from small tract to small tract until all the tracts have high bidders and the first phase of bidding has been closed out.
From this point, the bidding will begin anew on combinations. At some auctions I have been to, in order to be eligible to bid on combinations, you must be the high bidder on at least one tract. At most I have attended however, anyone can bid on a combination. A combination bid means combining two or more of the smaller parcels into one tract and raising the combined bid price of the two high bidders on each individual tract. (For example, in the first bidding phase Parcel A’s high bid was $30,000. Parcel B’s high bid was $43,000. A combination bid would be a bid for Parcels A and B at an amount of $77,000.) There is usually a minimum amount over the combined bid amount one must raise in order to place a combination bid. I often see 5% over the previous combined amount, although it can be any amount the seller and auctioneer decide. In the above example, the high bidder on parcel A and parcel B are now out and the new bidder of the combined amount is now the high bidder on both tracts. You can combine as many or as few tracts as you like, and this is often where you can obtain the best deals.
It is best if at all possible to determine the exact way the auction will be handled and famliarize yourself with it beforehand. Trying to learn this on the fly at the auction with noise and hullaballoo going on around you is difficult at best. I would certainly recommend to anyone seriously contemplating trying to buy something at auction to first attend several auctions where they do not intend to buy, if at all possible. It can be very confusing at first and experience is your greatest ally.
Hopefully after completing the above steps, it’s now time for the auction. From this point, you’ve done all the hard work, now it’s just doing a few small things to ensure you don’t make a mistake. One thing about auctions that you’ll see is that during the auctioneers try to gin up the bidders into a frenzy. They’re always yelling and encouraging. They have numerous auctioneers walking in among the crowd telling you what a great idea it is to bid. “You won’t ever get a better deal than this! $XXX dollars per acre? That guy is stealing it at that price!” The calling auctioneer is speaking in tongues. It creates excitement and confusion. Look at the auction video above and see how they’re doing running it, it’ll give you an idea of what to expect. As a bidder, all you need to do is remember which tract you want and remember your price point that you established prior to auction. Bid on what you want, and stay within your price point. Remember the amount of the buyer’s premium, it will be added to the purchase price so figure that into your bid amount. (For example, if there is a 10% buyers premium, and your high bid is $1,000/acre, your total expected payment will be $1,000 per acre plus 10% of $1,000 per acre for a total of $1,100 per acre.) Don’t let the activity get you carried away, or get in a bidding war with someone who drags you well above what your budget allows.
So the auction is over, and you’re the high bidder. Now what? Well, the primary advice I can give you here is get it closed! Those contracts typically call for a 30 day close. Make sure you get it closed in that time frame or you will be out your earnest money and possibly the property as well. Don’t accept delays from your attorney or your lender for going beyond the specified close date. I am aware of one instance where a high bidders attorney did not get the closing completed in the specified time. On the 31st day the auctioneer no saled it and returned it to the lender along with accepting the earnest money as prepaid liquidated damages. The seller found another buyer immediately and sold the property within a few days. A week later the original closing attorney was having to explain to the high bidders that the property was gone along with their earnest money. Do not allow this to happen to you. Get it closed!
Also understand that if the property is a reserve auction, your high bid may not get you the property. If there is currently a loan on the property, they’ll only confirm the sale if your bid is high enough to pay it off along with the costs of sale. If there isn’t a loan, the owner on a reserve auction can decide it’s not enough for him to sell. A great many auctions end in no sale, so understand this going in.
Hopefully this article gives you some ideas on the auction process and what is involved. I was planning to go into some quick pros and cons of the auction process for the buyer and seller but this blog is long enough. I’ll write another blog in the coming days to cover some of that information which may be of value as well.
So what are your thoughts? Have you bought land at auction? Sold land at auction? What was your experience? Any stories you’d like to tell? Please share them in the comments, I’d love to hear them.
If you are in the market to buy or sell land in Georgia, auctions can be a good way to go. We would be more than happy to assist you or if you prefer you can always visit us at georgialandsales.com to find what we currently have available for sale.