Buying Real Estate at an Auction: How Does It Work Exactly?

Buying a home or other real estate through a real estate auction works differently than a regular purchase through a real estate agent. Not only does the bidding process differ, but different legal and financial rules also apply. That is precisely why it is important to thoroughly understand in advance how a real estate auction works, what costs are involved, and what risks you face as a buyer.

Different Types of Real Estate Auctions

In a real estate auction, property is sold publicly according to predetermined rules. The two main types of auctions are:

The Voluntary Auction

In a voluntary auction, the owner chooses to offer the property for sale through a public auction. This happens, for example, when the owner expects an auction to yield a higher return than a private sale.

The foreclosure auction

A foreclosure auction occurs when an owner can no longer meet their financial obligations. The mortgage lender or another creditor may then decide to forcibly sell the property. Usually, it is the bank that, based on mortgage law, orders the auction to be organized. In other situations, a repossession agent or bailiff may also take the initiative.

What’s different about a real estate auction?

The auction terms are set in advance

In a normal real estate transaction, the buyer and seller negotiate matters such as the price, closing date, and additional terms. In a real estate auction, the process works differently. The notary drafts the auction terms in advance. These terms are fixed. During the real estate auction, the focus is solely on the amount of the bid.

This means, among other things, that:

• resolutory conditions are not permitted;
• financing must be arranged in advance;
• as a buyer, you have no leeway for additional agreements;
• the date of closing is set in advance.

Submitting a Private Offer

It is often possible to submit a written offer to the selling real estate agent before the auction. This is called a private offer. If that offer is accepted, the property will not be offered at the auction.

Make Sure You’re Well-Informed

For buyers, it is therefore especially important to have the auction terms carefully reviewed in advance. Unlike with a regular purchase, there is usually no opportunity to negotiate or add conditions afterward. In practice, properties are often purchased in their actual and legal condition, as described in the auction documents.

How does the bidding work?

A real estate auction usually consists of two phases: the opening bid and the closing bid.

The opening bid phase

During the first round, interested parties bid against one another. The highest remaining bid is called the “opening bid.”

The closing phase

Then the “closing” begins. The auctioneer starts at a higher amount and then counts down in increments. The first person to call out “mine” purchases the property for that amount. If no one calls out “mine” before the amount reaches the opening bid, the property is awarded to the highest bidder from the first round.

Award of Contract and Cooling-Off Period

In auctions, the seller usually retains the right to award the contract. This means that after the auction, the seller may still decide whether the property will actually be sold to the highest bidder. The sale is final only when the property is officially awarded.
An important difference from a regular home purchase is that, in a public notarial auction, you do not have a statutory cooling-off period. Nor can you rescind the sale if it later turns out that financing is not feasible after all. It is therefore important that you know exactly what you are bidding for, under what conditions you are purchasing, and what financial risks are involved.

Costs of an Auction

At an auction, you don’t just pay the purchase price. A buyer must also take into account additional costs, such as transfer tax, notary fees, auction fees, and, in some cases, the bidding premium (the “plok”). The auction information usually specifies in advance which costs are the buyer’s responsibility.

Costs for the buyer

Depending on the auction terms and conditions, the following costs, among others, may be borne by the buyer:

• the purchase price;
• transfer tax;
• notary fees for the transfer of title;
• auction fees;
• the reserve price, if it is to be borne by the buyer according to the auction terms and conditions;
• any costs for vacating the property, repairs, or overdue maintenance.

Costs for the seller or client

Costs may also apply to the seller or client. Examples include:

• auction organizational costs;
• notary and publication fees, to the extent that these are not passed on to the buyer;
• the reserve fee, if the auction terms stipulate that it is the responsibility of the seller or client.

The starting bid premium is usually 1% of the highest bid during the bidding phase. The highest bidder in that initial phase—the opening bidder—receives this premium if the auction is successfully concluded and the property is awarded. In foreclosure auctions for residential properties, this opening bid premium is usually paid by the client or seller. However, in some cases, it is paid by the buyer. Therefore, it is wise to always check the specific auction terms and conditions for the property.

Important Risks for the Buyer

A purchase through an auction involves more uncertainties than a standard purchase.

• For example, it may not be possible to view the interior of the property;
• the seller may have little information about the property’s condition;
• there may be hidden defects;
• the property may still be occupied or rented out;
• additional encumbrances or obligations may exist.
• Eviction may entail additional time and costs.
• A buyer has no legal cooling-off period. Furthermore, the sale cannot be rescinded if financing proves unfeasible.

Thorough preparation is therefore essential. Anyone buying a property at auction must take into account that not all risks are fully apparent in advance. For example, existing tenants or residents may affect the use of the property, while overdue maintenance or legal complications can lead to additional costs. A buyer’s agent explicitly checks for unforeseen costs, such as overdue maintenance and eviction costs.

Difference Between Private Buyers and Investors

For private buyers, a real estate auction is often less accessible than a regular purchase. This is because there is no financing contingency, the risks are greater, and the available information may be more limited. Anyone looking for a home to live in should therefore make sure to get thoroughly informed.

For investors, however, a real estate auction can be particularly attractive, for example, due to the expected return or the opportunity to purchase a property below market value. But investors, too, will need to conduct careful research into the condition of the property, its legal status, any tenants, and the total costs of purchase, renovation, and operation.

The Role of a Real Estate Agent in a Property Auction

When purchasing a property through a real estate auction, a real estate agent plays a different role than in a standard real estate transaction. The agent’s guidance focuses primarily on research, risk analysis, and strategic advice.

Preliminary Research

Among other things, a real estate agent investigates:

• the current market value and expected return;
• determining what a responsible maximum bid is, so you can avoid letting emotions get the better of you during the auction;
• the condition of the property;
• any outstanding charges that will be the buyer’s responsibility;
• assessing the risk associated with potential tenants or occupants;
• legal details and potential risks in the auction terms and conditions;

Support During the Auction

An estate agent can also be invaluable during the bidding process. This includes:

• determining the bidding strategy and advising on timing;
• preventing a buyer from getting carried away by the dynamics of the bidding;
• explaining the legal terms and conditions;
• bidding on behalf of the buyer.

Support after the purchase

Once the property is awarded, quick action is often required. An agent can assist with, for example:

• coordinating with the notary;
• property handover and final transfer of title;
• rental issues;
• possible eviction;
• future sale, management, or operation.

Are you interested in a specific property?

Please note: auctions may be canceled.
It’s not uncommon for an auction to be canceled at the last minute. For example, if the owner ultimately reaches a payment arrangement or repays the debt, or if the management/real estate agent has accepted a favorable offer for the auction evening prior to the auction.

Expert guidance prevents surprises

Real estate auctions offer opportunities but also require extra caution. Due to limited consumer protection and legal complexity, expert guidance is strongly recommended.

Would you like to bid on a property at auction? Then engage a specialized MVA auction and investment real estate agent. They have extensive experience in foreclosure and investment real estate and can help you mitigate risks and make informed decisions. They can help you assess the auction properties and make well-considered choices.

Curious about the current auction listings? Check out the overview on De Eerste Amsterdamse.