Rules Different for Real Estate Bidders

Because the properties offered at a real estate auction typically are financed rather than purchased with cash, the rules are different than at other types of sales.

Typically, bidders must register and show cashier’s checks, made out to themselves, as so-called earnest money. The amount of the check is set by the auction company. For this month’s sales, the Resolution Trust Corp. is requiring $2,000 and Real Estate Disposition Corp. $2,500.

Bidders can obtain financing from their own lenders or ask the auction company for referral to a lender it works with. Most auction firms deal with several lenders that understand the speed with which transactions must be handled.

At the sale, the auctioneer starts the bidding at an amount set by the seller and tries to work the price up from there.

At most real estate auctions the seller stipulates a bottom price, or reserve. The auctioneer cannot sell the property for a lower price without the seller’s permission.

Those reserves are not published because they would establish a minimum value and discourage bidders from going higher. The auctioneer’s opening bid is usually higher than the reserve.

Bidders at a real estate auction can obtain advance approval to buy more than one house. Those who do so typically are seeking investment properties.

The auction company typically has an escrow company at the site on auction day. Winning bidders must immediately make escrow deposits--%5 of the bid at the RTC and Real Estate Disposition Corp. events.

From that point, the deal progresses like an ordinary real estate sale.

If a winning bidder for some reason cannot obtain financing and withdraws, auction companies generally refund all deposits unless there is evidence that the bidder falsified credit background or loan application information.