With an ongoing housing boom rose the number of first-time home buyers. One of the common ways people try to get a residential property since the 1800s is by auction. But there are hidden costs associated with auctions, and as a bidding war occurs, you might end up paying more than what you intended to. Although people are enticed to attend auctions through a low initial price for the property, auctioneers are notorious for playing on the emotions of bidders to drive the prices up.
At the Mercy of the Hammer
It’s not uncommon for auctioneers to taunt bidders with the hammer. Bidders are usually advised to remain calm and not to fall into the threats of a deal closing. But an overly competitive bidding environment tends to inflate the price of the property. It becomes an overly emotional situation where the initial selling price keeps going up as you find yourself suddenly bidding way over your budget.
Before attending an auction, you would have inspected that home and imagined yourself living there. You would have imagined where your bedroom would be, what your kitchen would be like. Before the auction, you also would’ve checked the neighbourhood where the house is situated, scouted the establishments nearby, and who your neighbours would be. Imagine investing all of that time and finding yourself being outbid by someone else because the price went way over budget or what you have left in the bank.
A disadvantage with auctions is the need to provide 10% of your bid upfront. There’s a cooling-off period when you can finalise the purchase because it will be finalised then and there, so long as the seller approves. But the 10% can end up being a lot higher than the listed price because the main reason auctioneers drive up the price is that there is a reserved selling price that they have to reach. The listed selling price tends to be lower than the actual price the seller intends to sell it. This reserved price is usually hidden from bidders.
That’s another disadvantage — you’re also going to need the approval of the seller. The bid has to be satisfactory enough for the seller to accept it and close the deal. You’re also going to be at the mercy of the terms and conditions of the seller, non-negotiable.
Another added cost when you go to an auction is when you opt for attending one with an agent. Agents can help guide you through your purchase, but they can also charge a hefty fee. On top of that, since the seller of the house takes on the services of an auctioneer, it can add to the selling price of the home.
Even if you do get the house at the bid you intended, there is still a risk involved. The purchase you’ve made is unconditional. If there are any repairs to be made or any problems you missed while conducting the inspection, you’re bound to shell out extra cash to fix them. This is on top of what you paid during the bid and the terms of payment you agreed to with the seller.
Make Smarter Choices
Avoid the hot, long auctions with auctioneers loudly driving up the price by doing it yourself. There are websites where you can buy houses and plots of land. That will definitely cost a lot less than buying it through an auction or an agent because it will be a direct-to-consumer platform. The selling prices are public, and you can even specify how many bathrooms and bedrooms you want.
The convenience that technology provides is unprecedented, and it’s here to save you money. You can take a peek into your future home without having to step into it. Through negotiations online, you can inquire and bid on your dream home without having to spend any gas money. Your purchase will remain private, and you won’t be subject to the emotional roller coaster a bidding war takes you on.
You won’t have to make any hasty decisions either. It’s a lot of money upfront, compared to online platforms that allow you to mull it over and have a more sound conversation with your spouse and your kids (and your bank account).
Play it smart and be ahead of everyone else stuck standing for hours at an auction. It’s been over two centuries since the traditional way of buying houses through an auctioneer began. Get with the times and find the listings online instead of getting caught up in the extra expenses associated with auctions.