Auction know-how

Issues to consider before attending a live auction of nonforeclosure properties.

Q. What kind of auction is it?

A. In an "absolute auction," the highest bidder wins. Period. But absolute auctions are rare. More commonly the seller has an unpublished "reserve price." The top bidder must meet or exceed this price or there's no sale.

Q. Can bidders get inside properties beforehand to investigate their condition?

A. Ask the auction company early on to view the property because they are sold "as is."

Q. Can buyers see the sales contract and any other legal documents related to the property before the auction?

A. Ideally, the answer is yes. A shrewd buyer will read them and have a real-estate attorney review them beforehand. In buying a condo, for example, the legal documents tell buyers how the association is structured and what they can and can't do with the property.

Q. What preparation is required?

A. Bidders must preregister, bring photo ID and a cashier's check for $5,000 or so to prove they're serious. This will be applied to their down payment. They also must be prepared to write another check on the spot to cover the balance of the down payment.

Q. What else do they have to pay?

A. It's customary for winning bidders to pay 3 percent to 10 percent of the purchase price as the auction house's commission. Called a "buyer's premium," this is added to their winning bid and pays the cost of holding the auction. Buyers also pay the usual closing costs.

Q. What are bid-rigging and running the bid?

A. Bid-rigging occurs when someone tries to scare off other bidders by broadcasting untruths. For example: saying the property was a crime scene when it wasn't. Running the bid occurs when a shill who has no intention of buying bids up the price. Both tactics are illegal but not unheard of.

Q. What happens if buyer's remorse sets in?

A. Buyers may be able to cancel the purchase but may still be out the initial amounts they paid.

— Elizabeth Rhodes