Land auctions can be an excellent way to purchase a piece of land at a price that doesn’t dig a hole in your pocket. Real estate properties at auctions are typically priced below the market value, a factor why they’re great for investments.
However, buying land at an auction is quite different from purchasing one through a real estate agent. There’s a level of unpredictability when attending auctions that you must be wary of. Instead of paying a reasonable price for a property, you might find yourself spending more money than it’s worth.
So, it’s crucial to get an idea of how auctions work by attending a few of them. Or, you can take note of these steps below to know the process of buying land at an auction.
Look for Land Auctions Near You
Private auction houses and local governments conduct land auctions from time to time. You better inquire at local government offices, read local newspapers, ask real estate agents or brokers, or visit auction websites if there are new auctions near you.
If you want to purchase public land, you can attend land auctions organized by a locality where the property is located. There are also land auctions conducted by private groups in your locale, especially if you’re living in a rural area.
Read the Terms and Conditions of the Auction
You must check the auction’s terms and conditions concerning the sale of the properties offered. At this stage, you’ll know how things work if you buy a piece of land from the auction. You’ll learn details such as:
- The types of land that are up for bidding
- Minimum bid prices
- Whether the land is reserved if the bidding doesn’t hit a specific price
- The type of land title up for transfer
- When should you expect to pay property taxes
- How and when you can take possession of the land
- Conditions of the land sale
Schedule Property Viewings
The information on the properties that are up for sale will be available online, at the local government, or at the place where the auction will be held. If there’s a piece of land that interests you, make sure to ask the auctioneer for a property viewing. You can assess the land that is up for sale at an auction, especially if it’s not subject to a forced sale.
On the other hand, a property that’s subject to a foreclosure sale, may not give you access to view it closely because the rights attached to the land don’t belong yet to the person or the government that auctions it. You must get permission from the landowner before you can have a tour of the property.
It’s also crucial to find comparable properties in the area to determine the value of the auctioned land. This is to give you an informed decision on how much you’re willing to bid and how much loan amount you’ll need for the property.
Get Pre-Approved for a Mortgage
After appraising how much the land you’re interested in is worth, it’s now time to secure financing if ever you win the bidding.
Most auction houses will allow you to secure a mortgage to fund your purchase of the property. But, other auctions, especially land sold at foreclosure sales, will compel you to pay the full price as soon as you win the bidding.
For an auction that allows you to finance your land purchase, make sure to secure a pre-approval for a mortgage. If the auction house doesn’t let you get a mortgage, your only option is to gather the necessary money to cover the full amount of the purchase if ever you’ll be the highest bidder.
Make a Down Payment
You have to show to the auctioneer that you can pay the purchase price if you win the bidding by making a down payment. The down payment will depend on the estimated value of the land that interests you. Typically, you have to pay 5 to 15 percent of the property’s value before the bidding begins.
The amount you pay for the down payment will serve as a deposit to your final payment if you win as the highest bidder. If you lose the bidding, your down payment will be given back to you immediately.
It’s Time to Bid
After making a down payment that allows you to participate in the bidding process, it’s now time to bid. Of course, the auction will start at the minimum bid price, and it will go up as more people bid.
Make sure that you don’t bid more than what you think the property is worth. Always pay attention to the current bid price. Once you win the bidding for a reasonable purchase price, the auctioneer will get your information to proceed with the final sale.
Finalize the Sale
As the winner of the bidding, you’ll now have to talk with the administrator regarding the final stage of the sale. If you’re allowed to secure a mortgage, you’ll enter into a closing period to prepare the necessary documents and finalize your mortgage to finance your land purchase. The closing period typically takes between 40 to 60 days.
If the auction house requires you to pay the full amount of the property right after winning the bidding, there will be no closing period, and you need to pay the full price right away. You can take possession of the land once you make your final payment.
Now you know the steps on how to purchase a piece of land at an auction. Always make sure to do your bidding properly and take caution to safeguard your purchase. Don’t pay more than the market value of the property.