Friday, July 9, 2010

Buying at Auction – Pratfall Prevention

As the real estate market in New York City continues to grow and change, a new venue for buying and selling real estate is picking up steam. Over time, auctions have become a more popular way to buy properties, especially distressed properties. Before making a costly mistake, make sure you understand the psychology behind the purchasing at auction.

When a buyer is involved in a private sale, the buyer’s goal is to minimize the amount of money he pays. That much is simply human nature; people want the most they can get for the lowest price possible. However, if the same buyer was put into a similar situation at an auction, his thoughts would be occupied with figuring out exactly what is the maximum amount of money he can spend on said property. Instead of thinking “What is the absolute lowest I can pay for this property,” a buyer at an auction thinks “What is the most that I can pay for this property.” This dramatic difference in behaviors results in huge disparities in final sale prices.

Thus, it is incredibly important for you to remain vigilant when buying anything, especially real estate, at an auction. Figuring out the maximum price you are willing to pay for something beforehand, and sticking to that price will help prevent you from overexerting yourself.

Buyers also need to be aware purchasing at a popular high-activity auction is oftentimes not the best idea. Low-key auctions often fetch much lower prices on similar properties. Lastly, when it comes to bidding on properties, a savvy buyer will bid on a property with a higher reserve price and a higher starting bid. Studies have shown it is those properties that end up selling for less. Low reserve prices prompt a lot of activity, and a lot of activity at an auction directly correlates to a higher final bid.

Buying at an auction can save you money, but it can also cause you to pay much more than you are ready to pay. Remain vigilant!

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