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How do I Choose the Best Auction Property?

Article Details
  • Written By: Carol Francois
  • Edited By: Heather Bailey
  • Last Modified Date: 19 November 2016
  • Copyright Protected:
    2003-2016
    Conjecture Corporation
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Choosing the best auction property requires a combination of clear goals, estimated financial return on investment, and an accurate evaluation of property value. A property auction is a method of selling a wide range of properties in one place. The process is managed by the auction company, and may include commercial, land, and residential properties.

An auction property is listed by the auction firm well in advance of the actual date of auction. Interested purchasers are advised to go to an open house to view the property. On the day of the auction, the potential buyer must either attend the auction or send a representative. When the property is available, bidding begins and the highest bidder wins.

An auction can be an exciting event, and many people bid more than they intended. Take the time to prepare for the auction to avoid costly mistakes. Write down your long- and short-term goals for any auction property. Calculate the upper dollar value limit for the property, including the auction fee. This fee ranges widely, but is typically either a flat rate of $2,500 US Dollars (USD) or 5 to 7 percent of the property purchase price.

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The primary purpose for purchasing an auction property is to sell it for a profit. Most auction properties were unable to attract buyers through the normal channels, due to the current condition of the property, economic conditions, or a large number of similar properties in the same geographical region. Take the time to determine why the property is being sold at auction, as this has a direct correlation to future profit opportunities.

A property being sold at auction is purchased without any guarantees to workmanship or state of repair. Physically inspect the property with a knowledgeable property inspector to determine the estimated cost of repairs. Evaluate the design options and discuss renovations in detail, to finalize both the cost and time required. Profit is only realized if you can sell the property for more than the original purchase price plus repairs or renovations.

Evaluating the true value of a property requires time and skill. A quick method to determine historical value is to look at the property tax assessments for the past five to seven years. Look at the current value by analyzing the selling price for similar properties sold in the last year. Estimate the value of your property by comparing size, location, and features. Reduce your valuation by 3 to 5 percent and use this as your benchmark to avoid losses.

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