Bidding for a home doesn't have to be intimidating if you do your homework

Bidding for a home doesn't have to be intimidating -- if you do your homework

Is it scary to buy a home at a real estate auction?

So many houses are going under the gavel in the Chicago area with estimated values from under $200,000 up to $1.7 million, you might be tempted to wade into the market.

George Zoellich, who bought a townhouse in Orland Park at an Inland Real Estate auction, shares his experience.

Zoellich and his wife June live in the home they purchased in October 2005. Although it was his first auction purchase, he has the advantage of being a real estate agent with RE/MAX South Suburban in Flossmoor.

The Zoellichs had been interested in new-construction townhouses, but had not been ready to buy, so they were thrilled to see three of them go to auction -- including one they liked.

Perhaps George Zoellich's worst moment was when he walked into the sale.

Approximately 200 people showed up, and he was afraid they were all interested in the three townhouses. But it turned out about 10 properties were for sale.

There were five people who bid on Zoellich's choice, and one bidder stayed with the process for about six rounds.

Zoellich's winning bid was in the $300,000 to $350,000 range -- less than typical selling prices in the area, he said.

Zoellich brought a cashier's check for $22,000, and then had to increase the down payment within a short period after the auction.

One of the advantages for buyers is that they know immediately or within a set time whether their offer is accepted. If there are multiple offers in regular real estate transactions, it can take days to determine who gets the property, and the prospective buyers do not know the details of the other offers, said the real estate agent.

"Auctions may not be the right process for a large percentage of the population if they aren't ready, willing and able to purchase today," Zoellich said.

"If you are, it's a great opportunity to save some money."

Here are his recommendations:

• Do your homework. Know the market and what comparable houses are selling for.

"I can understand why people who haven't ever owned a home might be intimidated by the process. They might be paying more for the property than what its worth."

• Before the auction, determine what your maximum bid will be.

• Consult with a real estate agent in advance. He or she can help you understand the process and gauge the value. Otherwise there will be no one who is your advocate.

There are rules for the agent to get a commission, and generally he or she must accompany you and sign in the first time you visit the property.

• Read the packet that you receive from the auction company. You might have to pay a nominal amount for the information.

• Be sure you will be able to borrow any money you need to purchase the property. The cashier's check you bring to the auction will probably be forfeited if you win the auction and do not close on the property.

If you need to sell a house to purchase this one, be sure you can do it in time or arrange a loan.

• Understand the difference between a house that is sold with a reserve and one that is not. If there is no reserve, the property goes for the highest bid.

The amount of any reserve will not be announced, but the seller does not have to let the house go if none of the bids reach this previously determined amount.

• Do not be afraid you will miss your property. They are listed in the order they'll come up. However, the actual auction goes quickly. Each property might take six calls for bid before it is sold, Zoellich said.

Auction staff will move through the audience looking for bids, so there is no danger your bid won't be noticed.

And there is always plenty of time for another bid to get in before the hammer falls.

• Auction fever is exaggerated, Zoellich said.

"Nobody is going to ask them to bid more on a property than what they want to," he said.

Recommendations from auctioneers:

• Bring a home inspector to the property you are interested in. This must be done at the open house before the auction. After the bidding is too late.

• Have an attorney look over the bidding papers before you bid.

• Notice that buyers might be charged a premium, usually between 3 percent and 5 percent.