Are you looking to pick up new ground but want to try and avoid paying record high sale prices? Buying land at auction—particularly via online auction—could be a more affordable solution. 

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This article will break down the benefits of buying land at auction, how online auctions work, and some steps you can take to maximize your value at every step. 

The benefits of buying land at auction

At its core, real estate is just about making sure you put out the best bid for the best property. If you’re going to have to bid anyway, why not buy land at auction instead of more traditional routes? 

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Some of the benefits of buying land at auction include:

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• Seller commitment. Sellers backing out of a potential deal can be frustrating. Fortunately, once a property is on the auction block, it’s ready to be sold. That means you have zero uncertainty about the seller’s intention or commitment.
• Buyer-led pricing. Although negotiation is part of a typical buying process, in an auction the buyer has more control over the pricing. There’s a downside, however, as a highly competitive bidding war can end up in overvalued land. 
• Level playing field. In an auction, all buyers are competing with the same information and bidding at the same time. There’s full transparency, no parallel negotiations, and unfair practices. What you see is what you get. 
• No negotiations. The auction process is nothing if not simple. There’s no complicated, time intensive, or stressful negotiations. 
• Shorter close times. If you don’t want a drawn-out sale, an auction is a great way to minimize the timeline and get the deed that much sooner. 

How farmland is bought and sold at auction

Farmland and real estate auctions function much the same. An auctioneer, either the government or a private business, will hold the auction, while banks will be in charge of taking bids. There’s a starting price, and then you and competitors bid until no one else has outbid you. 

Some auctioneers may establish minimum increments (e.g. $1,000 dollar values or higher) to weed out excessively small bid increases. Additionally, you’ll have to prove that you have the finances available to buy the property, often through a full review of your finances.

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What’s more, you need to be prepared to provide payment at the auction. If you need financing support, you’ll need to pre-qualify for that before the bidding starts. 

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Aside from that, property closings are typically conducted the same as typical real estate transactions. The only difference at this stage is that you’ll have to pay a commission to the auction, usually 5 percent. 

Types of farmland auctions

Depending on your situation, land can be auctioned in different ways. Here are some of the more common types of auctions used in agricultural real estate. 

Reserve land auction

In a reserve auction, the seller has a minimum price (or bid) they will accept. This “reserve” is negotiated with the auction company before bidding starts. If the highest bid does not meet the reserve, the seller must decide whether or not to accept the price. 

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However, if they decline the bid, the seller may still be responsible for auctioneer’s fees. This means they’re incentivized to move forward with the bid, even if it’s less than they had anticipated. 

Absolute or open land auction

There’s also an absolute or open auction. In this arrangement, there’s no reserve price; the seller takes the highest bid, no matter how low it is. This can be exciting for buyers. However, sometimes sellers have to settle for a price lower than the land’s actual value. 

Online vs. in-person land auctions

Both reserve and absolute auctions can be held in person or online (or both). Online auctions are a great option for buyers who can’t travel to the auction site. By participating in online auctions, buyers can vie for land that otherwise would be inaccessible to them. 

Best practices for online land auctions

Remember: the ultimate goal isn’t to acquire the asset, but to make a return on the investment. A “buy at all costs” mentality can be detrimental. That’s why it’s important to go into an online farmland auction with a clear plan. 

1. Do your homework

It’s important to know as much about the piece of land you’re buying as possible. This can help you determine fair market value, predict potential ROI on the investment, and even give you an idea of how competitive the auction will be. As with any other asset, the more you know, the better.

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Keep in mind that some land sold at auction is in need of repair. While a low sale price may more than justify the additional cost of repairs, it’s a good thing to inquire about the property before finalizing the sale. Most sellers and auction companies will provide due diligence packets with key information in advance.

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Remember: auctions are meant to be high-energy and fun. But don’t get swept away. Do your homework so you don’t end up with buyer’s regret. 

2. Know the auction terms

As mentioned earlier, there are three primary auction terms: reserve, minimum, and absolute or open. Knowing these terms in advance—whether the auction is online or in-person—is essential to a good bidding strategy. 

3. Stick to your budget

In the heat of the moment, it’s easy to get competitive and overbid for a piece of land. But once the deal is done, you’re stuck with the result. So make sure you’re clear on your budget and stick to it. 

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It's very important for you to know that you'll be penalized heavily if you withdraw a bid. The amount that you are penalized will depend on who is auctioning the property, and there are rules regarding withdrawing.

Final thoughts: consider buying your farmland through online auction

Buying land via online auction can be an affordable way to pick up new ground amid high land values. Especially if the land continues to appreciate, negotiating a lower price could have a major impact on your bottom line.

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If you’re ready to get started, learn more about GroundOS here. 

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