Online auctions offer both novice and experienced real estate buyers a way to obtain under-valued properties. Below are a dozen tips from Bid4Homes, a leading online auction company, to help you successfully and profitably bid online for real estate.
1. Don’t be tentative about participating in an online auction.
Today, people buy and sell a wide range of extraordinarily high-value items, from Porsches to Picassos, through online auctions. Millions of people are frequent bidders on online auctions.
Real estate is no exception. More than half a billion dollars of real estate has been sold through our online auction site, bid4assets.com. Most online real estate auction sites are easy to use and give you the information you need to assess the true value of the item. Once you try shopping for real estate on an online auction, you’ll know why it has become a widely accepted way to find great deals on property.
2. Get to know the auction site’s process and policies.
Every auction site operates its auctions differently. Be sure to understand the auction process and site policies in detail for the site you are using. The process and site policies are usually clearly outlined in the “Terms of Service” agreement. There are often differences. For example, real estate bids are a binding contract on some sites. On other sites they are not binding. On some sites, auctions have a set end time that won’t be moved. On other sites, like Bid4Homes, the auction continues until no bids are placed for five minutes so the bidder is assured of submitting their “best and final” price.
3. Clearly understand what is being auctioned.
This seems basic, but while most properties and real estate auctions are straight- forward, they can come in several forms that may not be easily understood by potential buyers. For example, is the property a condo or a timeshare? Real estate can fall into several categories of deeds (warranty, quitclaim, etc.) Is the property for sale outright or are you bidding on a down payment (called a “bid and assume” sale)? “Bid and assume” auctions require payment installments to the seller in addition to the bid amount; and the winning bidder does not obtain the title until the outstanding balance is paid in full.
4. Get to know the seller.
Find out as much about the seller as possible. If the auction site allows buyers to rate a seller or provide feedback, review the information thoroughly. Buyer feedback provides insight into the person/company selling the property and may reveal potential problems. It is advisable to be particularly thorough with all research if a seller profile has feedback from a few buyers. If feedback is sparse, consider checking the Better Business Bureau (www.bbb.org) or Federal Trade Commission (www.ftc.gov) if the seller is an institution.
If you are concerned about whether or not the seller owns the property, it is acceptable to ask the seller to send an electronic copy of the property deed.
Always provide feedback on a seller after your transaction is finished.
5. Ensure your ability to bid and close the deal.
Buying real estate requires significant financial resources. Even if you do not have cash on hand to cover your bid, you still may be able purchase real estate through online auctions. Identify a source of money well in advance of the start of bidding. This may include getting pre-approved for financing. Be familiar with the seller’s payment terms to ensure that you have the cash in-hand, when it is required, to pay for the property should you become the winning bidder.
Some auctions require a deposit in order to bid. You’ll find the deposit amount listed in the auction. Usually this deposit can be placed in several ways. Some methods require more time (many sites require only “certified funds”). Be sure you have the cash to make a deposit and, if you are transferring money, allow the requisite time for the transfer to occur.
6. Consider the settlement requirements, including payment options.
Payment arrangements for property bought through an online auction are made between the buyer and the seller. The auction services company is generally not involved in this transaction.
Be sure you identify all the payment requirements and fees that the seller is charging. A seller can charge a fee for services like title search, transfer or closing. There may even be a “buyer’s premium”. Specifics on such fees should be listed within the auction description.
Be wary of sellers who require payment by a wire service like Western Union or MoneyGram. These services provide no process to dispute the transaction in the event that the seller misrepresents the property. Payment methods like ACH (e.g., electronic deductions from a checking account), personal checks and PayPal provide buyers with a process to dispute charges and therefore offer some level of protection.
Note that on some sites the transaction is a binding contract so long as the property listing is accurate. If you have concerns about the settlement requirements or believe you may not be able to meet them, contact the seller prior to bidding to ask about alternative arrangements.
7. Research prices of comparable properties online.
Many factors influence what a buyer is wiling to pay when it comes to real estate. The estimated price of comparable properties located near the listed property is one factor in assessing the worth of a property. Look at the sale price of properties nearby that have sold recently. Be sure to evaluate the sales price and estimated value of similar properties that are in the same zip code, if not within a few blocks of the property under consideration. Adjust your estimates based on factors like the number of bedrooms, bathrooms, lot size, square feet of living space, recent renovation, landscaping and overall condition.
Online newspaper classifieds and real estate broker sites can be a source of listed prices for nearby comparable properties. For example, a site like RealtyTrac, with almost 1 million listings, can be a valuable source of current, local information. Any online properties listed on RealtyTrac are paired with a list of up to 15 comparables displayed on a map, along with a link to check local properties listed on the Multiple Listing Service.
8. Research the neighborhood, including amenities, infrastructure and nearby features that may add or detract from the property.
Most real estate buyers know how important location is to establishing the value of a property. The evaluation of a property’s location is up to individual buyers based on the distance to places that are important to them.
Consider the proximity of the property to features like mass transit, highways, business centers, shopping, schools, or recreational areas. Look for the location, for example, of landfills, industrial parks, airports or quarries.
Google Maps and RealtyTrac.com can give you aerial views of most neighborhoods in the U.S. The address of the property you are considering and important landmarks can be easily queried, located and labeled on this local map.
Google Maps can also give you street level views of many neighborhoods, as if you were standing in the street
The U.S. Department of Housing and Urban Development is a source for information about real estate developments, both those that have been completed and those that are planned. Search engines can also provide a means to research the neighborhood and town where the property is located.
9. Be rigorous about due diligence. Eliminate the chance of “surprises”.
Many auction listings provide a summary of due diligence findings. Be sure to thoroughly review all the information provided in the listing and confirm claims whenever possible.
Counties generally retain important information on special circumstances associated with real properties, including tax rates, zoning designations and details on any liens or back taxes on properties. It may require some legwork to get the information, but it is worth the effort. Online auction properties listed on RealtyTrac include loan information and previous sale information to help your research.
Find out if the property is part of a homeowners association or covered by a community covenant. If it is, there could be recurring expenses or community restrictions. You should be particularly aware of restrictions if you intend to do extensive renovations. Do not hesitate to ask the seller to give you details, to clarify information or confirm your findings.
10. Visit the property and arrange for professional property evaluation
You may decide to limit your activity to properties in your area when starting out with online auctions, It may sound like common sense, but it’s always a good idea to visit a property in person; however,that may not be possible for properties auctioned over the Internet. If the interior is not accessible, it will be valuable to drive by the property and view the exterior and the yard.
Alternatively you can hire an inspector or appraiser to evaluate the property for you. Plan ahead. Access to the property can often be a challenge given schedules, location of the property, seller and buyer, etc. Many properties for sale through online auctions may have limited hours for inspecting the property. Arrangements to inspect the property should be made with the seller prior to bidding on the auction.
Here is a source for locating a home inspector or appraiser: American Society of Home Inspectors (www.ashi.org) and American Society of Appraisers (www.apprasiers.org).
11. Determine the maximum amount you are willing to pay for the
property after considering all factors and all anticipated expenses.
Determining the highest price you are willing to bid is an important part of the process. Identify this price and don’t bid higher than your limit. In other words, don’t let your emotions control your bidding and be willing to move on to the next property if you are outbid.
12. Bid with confidence.
You have done your homework, developed a bidding plan and now you are ready to bid.
Some auctions allow you to bid in two ways. A “flat bid” means that you place bids manually. You must place a bid each time you are outbid. An “auto bid” is the maximum bid you’re willing to bid on the auction. The auction site will automatically increase your bid to maintain your high bid position or to meet the reserve price. Your bid will be increased only as others bid against you. Your “auto bid” is held confidentially in the system.
Remember to carefully read the Terms of Service one last time before you bid.
Then bid with confidence and have fun. Enjoy the exhilaration that comes with online bidding and buying real estate.