Everything happens online these days, and purchasing a home is no exception. In recent years both buyers and sellers have made their way online to get a noteworthy deal. The wider pool of bidders at an online auction means the seller is unlikely to find someone who’s willing to pay a lot more than the opening bid. In addition, it’s also a great way for banks to find buyers for foreclosures, banked owned property and short sales. But with all the odds stacked in favor of a seller – is an online auction worth your time and money as a buyer?
That question is entirely subjective. You may find a great deal at an auction or you may find that you’ve been ripped off. The better question to ask is what do you need to know about an online auction?
Short Sales, Foreclosures, Bank-Owned Property and Secret Reserves – An Online Auction Is Wilder Than The West
If you haven’t attended any auction before, chances are you shouldn’t buy a home (especially your first) through this method. Auctions can become very technical and you may feel blindsided or ripped off when it comes time to follow through on your purchase. For example, the property you’re bidding on is likely being sold “as is” so you won’t be able to renegotiate or cancel the agreement once you arrive on site and realize how bad the home really is. So, wherever possible first view the home in person before attending the auction.
Most buyers think homes listed on auctions are foreclosures, but they may be short sales or even bank-owned. That doesn’t seem like something worth mentioning until you realize that in the event of a short sale the bank doesn’t have to sell to you even if you are the highest bidder. They can simply sell to another buyer who didn’t attend the auction but offered to pay more than you did. Really, you’re at the mercy of the bank in this case. And what if you are the highest bidder in all cases, well, the bank can still hold off on the sale while they try to find other buyers so they don’t make such a loss.
However, the uncertainty doesn’t stop there. Sellers are allowed to place secret reserves on a property listed at an auction. This means that if the property doesn’t go for the price they really want, no biggy, simply don’t sell to the highest bidder. An opening bid isn’t really a guideline of the expected cost of the property but more a way to entice buyers to the auction under the guise they’re getting a deal.
All this shouldn’t dissuade you from purchasing through an auction but it certainly shouldn’t be the first option of a first time buyer with limited funds.
Navigating the auction world in general can be tricky so you should always get help from a seasoned and trustworthy real estate agent who has your best interests at heart.