Purchasing Real Estate in an Online Auction
In addition helping real estate buyer clients buy property via online home auction, I’ve also personally purchased property for myself via online home auction.
What is an online home auction?
A virtual bidding platform, just like a real-life auction, but taking place via the internet. What’s the difference between an online home auction and a live home auction? An online auction is just like a real-life auction except that it’s held on the internet.
What are the pros of buying real estate through an online home auction?
You can get a deal. You can purchase property that other people are afraid to pursue, simply because others are unfamiliar with or afraid of participating in the online auction. Many people don’t understand this platform and how to use it, so they simply avoid it. If you learn to use it, you can capture deals that others will miss, ignore, or walk away from.
What are the cons of buying real estate through an online home auction?
There can be a lot more risk for the purchaser when buying online as compared to processing a typical real estate purchase. First, one of the biggest hurdles of the online platform is that there may be no inspection period for you on the house. If you have a right of inspection on the auction property, the seller usually will make no repairs. Second, participating in an online auction is stressful! There’s a lot of uncertainty as to whether you’ll get the property or not. You have to bid live in real-time against others who are also bidding for the property, just like in a real live auction. In some cases you will not even be allowed to go inside the property before you bid! So there can be a lot of unknowns.
In some cases you have to pay to bid, whether or not you win the right to purchase. In some cases, loans are not accepted – you have to pay cash for the property sale. In almost every case, if you are the winning bidder, you will immediately pay earnest money that will be non-refundable (which means the earnest money will not be returned to you for any reason if you decide not to close on the purchase of the property). Finally, there are numerous different online auction bidding sites, and every one is different in terms of their website layout, participation costs, time limits, and bidding rules.
Precautions to following when buying at an online home auction
Know what you don’t know. Learn the differences between the bidding platforms. Read and thoroughly understand all the rules. Sit in and watch a lot of auctions before you bid on anything. Once you pick an auction property that you’re interested to bid on, if possible, view the property inside and pay a professional home inspector to evaluate it for you prior to placing bids. Save extra cash that’s readily available for unforeseen repair needs after closing. If a loan is allowed and you’re getting a loan, make 100% sure with your lender that you are totally qualified.
Why is property listed in an online home auction?
Often the homes are bank-owned, and banks find this is a faster, more streamlined process for them to sell off the property. It may not be easier for you, but it’s a lot easier for them! They have low expenses of sale this way, and very few risks (remember the nonrefundable earnest money you pay to them if you win the bid). It is simply a very fast way for them to sell their properties. Also, bidding wars can happen, which can benefit the seller by getting them a high price.
How good of a deal will I get at an online home auction?
It depends. The value varies widely. Learn to analyze real estate pricing – or engage a qualified, experienced real estate professional to do so for you – so that you can determine for yourself on a deal-by-deal basis how good or bad of an opportunity that specific property may be.
Lauren D Collier is a licensed real estate broker leading the Live Dream Colorado team of Epic Real Estate Group. She’s the founder of Colorado Springs’ Teacher Only Program®, a fervent advocate for homeowners, and a charitable donor to causes throughout the Colorado Springs community.
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