Foreclosures
Online Real Estate Auctions
After 14 years of working in the computer industry, I was naturally drawn to the concept of online auctions when I got involved in real estate. I’ve spent the last 3 years using online real estate auctions and have learned a lot.
I’ve found there is a lot of confusion on how they work or how to make them work. I will share answers to the most common questions I’ve been asked during the past 3 years.
Q) Will an Online Real Estate Auction force me to sell too low?
A) No, not if you structure it correctly. There are 3 main types of online auctions. If you use a Reserve Auction, you can set a hidden reserve price on the system and the auction will not be considered successful unless the reserve is met. If you use a Minimum Bid Auction, you don’t set a system reserve but you can state in your terms that the winning bid is subject to seller approval. The third type is an Absolute Auction, and this is the only type that could force you to sell it too low. Using this type of auction is not suggested, unless you are prepared to sell at a loss.
Q) Are online bids legally binding?
A) Yes, if the terms indicate they are and the online auction system has a trail to show the bid was made by the person. There are pages of legal information I can point you to on this, but I want to keep it short.
Q) What if the high bidder backs out?
A) There is no difference than having a signed sales contract on a property. You decide how much of an effort you want to take to pursue the person legally.
Q) How many properties have been sold through online auctions?
A) No one really knows. I know of many that I’ve sold personally, I’ve also know of many others that have been successful as well. The main thing to realize is the auction method of selling works well. The success, whether live or online all depends on how well the method is executed.
Q) What’s the secret to being successful with an online real estate auction?
A) Good information and Advertising. The online listing needs to contain thorough information about the property, terms that are easy to understand, pictures and a virtual tour, if possible. If the listing is put together well, the other key is to get the word out so people know about it. There are several good Internet advertising sites Free and paid that help along with yard signs, fliers, ads in local publications, etc.
Q) Aren’t auctions just for distressed properties that need a lot of work?
A) No, not anymore. I’m starting to see auctions for brand new properties from builders and banks that just need to get rid of them. Owners of any type of property, who are motivated, are turning to auctions for a solution.
Q) How long does an online real estate auction last?
A) Typically about 3 weeks. It depends on your marketing campaign and how many open houses you plan to do.
Q) Do I need a special license to do an online auction?
A) In every state, you need to be a licensed real estate agent. However, there is no requirement that I’ve come across that requires a special license.
Q) Aren’t online auctions just a fad that will go away when the market gets better?
A) I don’t think so. I think there are more auctions today than ever before because of the current market. However, I also think they provide a solution that is needed in any market, and sellers will find they are an excellent option for a property in high demand too. There are lots of examples on EBay of a unique item selling for some crazy amount. What owner or real estate agent wouldn’t want to watch hungry buyers fight it out online?
Q) How do auctions give you 3 opportunities to sell?
A) By holding an auction it’s not uncommon for someone to bring a written offer when the auction is announced to try and get it without competing with others. The second opportunity is when the auction ends with a winning bidder. The third opportunity is from follow-up with all interested buyers if it doesn’t bring a winning bid.
Q) What about non-U.S. buyers?
A) An online auction makes a property open to a worldwide audience. I was surprised the first time I saw a buyer from France win an auction. It demonstrated to me that online bidding is an effective way to get a property in front of a worldwide audience.
Q) Will an online auction work in my market?
A) It depends. If you are in an area where most people have high speed Internet access, than it will work. If you’re in an rural area where most people use dial-up and therefore aren’t on the Internet much, it will be much harder.
Q) Do I need a special contract or process to sell through an online auction?
A) No. An auction is simply getting you to agreement on price and terms with a buyer. The standard contract takes over from there, just like any other purchase agreement.
Thanks for Reading! I hope you learned something.
Tom Wood
Real Estate Auction Systems
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Thought I would address this topic as the question comes up quite often. The general public is extremely curious about this topic. An auction if executed correctly and ethically is the best way to buy and sell a home in any market. Moreover, the auction method of sale is not only for foreclosures and distressed situations. This is important to know because auctions styles and protocols for consumers are very different depending on the homes circumstances. So as a buyer you need to be aware of what type of auction you are participating in.
Just because you see the word “auction” does not mean it is a foreclosure. I need to stress that. And as a matter of fact, buying a home on the court steps during an auction is extremely difficult.
Nonetheless, if you show up to buy a home on the court steps during a foreclosure auction you had better be prepared. Depending on the state the property is located and what is owed on the home, you had better do your due diligence or you may be purchasing a home while at the same time inheriting mortgage debt that puts you upside down right out of the gate. If the property is worth buying, then small and large investors will be bidding with all cash offers because they know the ROI on that property can be realized. So if you are the only person bidding, STOP!!! You may not have analyzed the property circumstance very well.
Make sure to read the terms and conditions clearly. Some auctions may require all cash bids or pending bank approvals. Some court auctions do not allow for bank financing. So for a traditional buyer you are stuck. Save yourself the anguish and clearly read the terms and conditions. The banks may not make it is easy to purchase a property because they would rather have the asset revert back to them so they can sell it traditionally with a Realtor as a bank owned home.
The last item I want to discuss is “pending bank approval.” I absolutely despise this. This is not an auction even though it is being marketed as an auction. You see the ads on TV. “5000 PROPERTIES BEING AUCTIONED” at some fancy hotel.. Read the terms and conditions. WHEN THE HAMMER FALLS THESE PROPERTIES ARE NOT REALLY SOLD. Some asset manager at a bank has to approve it and in nearly all cases they counter back with a higher number. Remember they have a cash deposit to hold you to the fire. Hopefully as auctions gain in popularity as they are now, state regulators will clean this up. It really gives the word “auction” a bad name.
Look for my next article as I discuss non-foreclosure auctions for buyers and sellers. This presents a wonderful situation for buyers and sellers. It is also gaining in popularity over using the traditional real estate agent. Is this sales plan right for you?
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