Avoiding The Perils Of Condo Auctions
With the Gallery auction coming up we thought a guest post from a local auctioneer would be both timely and insightful. Normally I wouldn’t trust an auctioneer but I met this one at the 5th and Madison auction and he shared with NPR and I what to look out for and convinced me there are some good ones out there. And, he’s right about boats, the happiest two days of boat ownership were the day I bought it and the day I sold it.
– Matt
Like the old adage about boats, buying a condo at auction can mark either the best or the worst day of your life. On the positive side, a condo auction can be a great way to buy a unit at a terrific price. On the negative side, unprepared bidders can learn very expensive lessons. Potential bidders should always keep a few cardinal rues in mind:
Read the Auction Terms and Conditions. Most auctions have fair and reasonable terms and conditions. Unfortunately, the reverse can also be true. Please, read every single word of the terms and conditions. If there is something you don’t understand, ask the auction company for clarification in writing or ask an attorney.
Do Your Homework Before Auction Day. Make sure your plan of renting out the unit you buy is allowed by the condo bylaws and the rental limit has not already been reached. Research the building’s history and see if there is any pending litigation against the developer. Talk to other owners. Look for liens against the building. Spending perhaps $750 to have a real estate attorney discuss your planned quarter-or-half-million-dollar purchase and review the related documents should be considered mandatory, without exception.
Inspect, Inspect, Inspect. Condos are almost always sold “As Is” and “Without Contingencies” at auction. This means that if you are the winning bidder but you discover a problem with the unit after the auction, you’re out of luck. Hiring a professional inspector well before auction day can save a lot of money and a lot of grief.
Don’t Overspend. At most auctions, being unable to close will cost you your deposit and the deposit amount is usually significant. An excellent practice is to write down the maximum amount you can afford and stick to it on auction day. Keep a cool head, don’t make any spontaneous decisions and ignore high-pressure sales tactics from hysterical, over-caffeinated bid spotters or closing room staff.
Beware of Unscrupulous Auction Practices. Unfortunately, some auction companies allow the auctioneer to bid on behalf of the seller until the bidding reaches an unpublished reserve price. Leaving the legality or morality of this practice aside, the net result is that the leading bidder may actually be bidding against him or herself during the auction. Sitting at the back of the room can provide assurance that this isn’t happening, as can the perfectly legitimate practice of asking the auctioneer to point out who you’re bidding against if there’s any doubt in your mind.
Ignore the Starting Bid Numbers. Published starting bids are generally arbitrary and units almost always sell for considerably more. Convincing yourself that you’ll be able to buy a $750,000 condo for $1 more than the $150,000 published starting bid will only lead to disappointment.
Buying a condo or other real estate at a live auction can be an enjoyable experience and can yield an excellent investment. However, just like with boating, doing your homework ahead of time, being prepared and knowing what to watch out for can save you from ending up over your head.
Paul Thomas is a partner with Northwest Auctions, a Seattle-based company specializing in live auctions of residential and commercial real estate. He can be reached at [email protected].
