The auction process kicks off. The auctioneer sounds his chant. And the bidding war begins. Within minutes, you raise the winning bid at a land auction, and now, you're looking at the closing timeline like it’s an alien from mars.
What is the closing process after an auction? What is the auction contract timeline? What are the steps after winning the bid on property at auction? Read on to learn what happens after you win a land auction, with details on closing timelines.
Editor’s Note: This is not financial, investment, legal, or real estate advice. Consult with a financial planner, investment specialist, real estate lawyer, and real estate professional before buying or selling land at auction.
Understanding the Closing Process After an Auction
The closing process after an auction generally spans 30 days from the date of the auction. In some instances, it might be a 45-day closing period. The purpose of these timelines allows all parties involved (seller, buyer, lender, appraiser, inspector, auction house, title company, etc.) to complete the necessary work to transfer the property from seller to buyer.
Remember, posting the winning bid results in a binding contract. If you win the bid, you are required to follow through with the closing process. It’s no different than signing a purchase agreement with a traditional listing. Thus, there are multiple phases to the closing process:
Day-of-Auction Requirements:
· Paying 10% (non-refundable) deposit of total costs (purchase price plus buyer’s premium) the day of the sale.
· Providing proof of funds to follow through with the remaining balance.
· Have your lawyer immediately review the purchase contract.
· Sign the purchase contract.
The Closing Process Window:
· Conduct needed inspections. (Although these aren’t allowable for contingency’s sake.)
· Complete the title search. This is completed by the title company or real estate attorney.
· Ensure the title is clean and clear. (Again, completed by the title company or attorney.)
· Finalize financing and lending (if securing a loan for the property).
· Reach seller acceptance (especially if the property was bank-owned).
· Pay the remainder of the balance in excess of the 10% down payment from the day of the sale. Generally, this is done via cashier’s check or wire transfer.
· Complete the deed recording process.
· Secure insurance for the property.
The entire process is governed by the terms and conditions of the sale and the purchase contract. Each step is laid out plainly for the seller and buyer to abide by. Upon closing, the buyer takes possession of the property.
Benefiting From Auction Timelines
Camron Stover, a Land Specialist with Whitetail Properties and Ranch & Farm in Ohio and West Virginia, notes that there's definitely a benefit for buyers and sellers alike in having an auction. Of course, the seller (and auction house) set the terms. The seller helps choose the date of the sale, and the date for closing.
The process is notably transparent, very fast, completely structured, and more. Sellers have definitive sale dates. Buyers and sellers have plenty of time to do their due diligence and prepare for a safe and fair bidding process.
Obviously, from the buyer’s perspective, these same things can serve as advantages for them, too. Shorter closing periods with sure dates. Acceptable windows of time to complete tasks. It’s a win-win for all parties involved in the auction process. The 30- and 45-day closing periods are sometimes shorter than with traditional listings, but many buyers and sellers don’t want long closing windows anyway.
“From the buyer’s side of it, you might be in the same situation,” Stover said. “You might need to buy or sell something in a timely manner. In the meantime, you mustn’t have to worry about it sitting on the market. You’ll know exactly when and where the investment or divestment will take place.”
While most auction houses operate on a 30- or 45-day closing timeline, Ranch & Farm Auctions typically sets it up on a 30-day closing period. That closing process is a lot more guaranteed than a traditional listing, as there are many things that can derail a traditional listing. With an auction, it has much higher odds of closing.
“One of the advantages of the auction is a more guaranteed sale date, and closing rate,” Stover said. “That is something that some sellers and buyers look at as a great benefit.”
Certainly, the 1031 Exchange is a perfect example of this. Both buyer and seller are in a situation where they require faster sales and subsequent purchases. Thus, auctions can work well for all parties involved — whether buying or selling.
As a buyer capitalizing on the 1031 Exchange, Stover further notes that you can take the proceeds generated from selling at auction to reinvest as a buyer at a different auction.
“With the 1031, a lot of people come to the table ready to sell and/or buy a property,” Stover said. “This is often based on the opportunity to buy another one. Of course, if we put things on the market, we can't guarantee that it's going to receive an acceptable offer during that time limit — even if the price is right.
“In contrast, if we bring the property to auction, we do an excellent job with our marketing, just as with traditional listings under Whitetail Properties,” Stover continued. “We bring bidders to the table, and we know the price will work out well because of the level of competition that we bring there.”
It’s obvious that auctions are advantageous for buyers and sellers alike. In most farmland sales situations, each side of the deal stands to reap more pros than cons.
“At the end of the day, it also gives the buyer and seller the flexibility to go ahead and move forward with their potential investments,” Stover said. “Because a lot of times, that next business opportunity is just on the horizon, and you need to finish step No. 1 and 2 to get there.”
No Contingencies in Buying Property at Auction
Contingencies are common with traditional real estate listings. For example, a buyer might make a contingency offer. The contract might stipulate that they will buy a house on a contingency basis only if/when they sell their current home to another buyer. Other common contingencies include following through with the sale process if the property passes inspection, checks certain boxes, if amendments are made, etc.
With real estate auctions, there are no contingency agreements. The property is sold as-is, and you cannot bid in expectation of placing or signing a contingency agreement. Simply, it isn’t an option. The sale is final regardless of (most) outside factors.
Common Closing Timeline Issues to Watch For
There are numerous closing timeline issues to be mindful of. First, be prepared for financing delays. This is the most common issue with closing dates. So, it’s crucial to complete the pre-approval process well before the auction takes place.
Second, be completely aware of the auction terms and conditions. These are largely the same from sale to sale, but the fine details can vary from one to the next.
Last-minute changes in buyer credit can also pose problems. If credit scores recently changed (for the negative), this can impact lending qualifications. So can appraisal issues (not meeting appraisal figures), inspection issues (not meeting standards), title defects (liens, property line disputes, public record problems, etc.), and more.
To minimize risk of issues, don’t make large purchases close to the sale date. Also, don’t make big job or career moves. Plus, ensure all repairs are completed as agreed upon.
Overall, don’t expect closing timeline extensions. Auctions stand upon firm closing dates, and that’s something all parties must adhere to. Most importantly — maintain good communication with everyone throughout the real estate auction process. Do that, and you should successfully close on your next real estate transaction.
Buying Land at Auction with Ranch & Farm Auctions
For landowners looking to sell at auction, contact Ranch & Farm Auctions. We can answer questions and help with your auctioneering needs. For buyers hoping to purchase land, check out some of the upcoming Ranch & Farm Auctions near you.