A Guide for Winning Online Real Estate Auctions
Technological advance is pushing the real estate market to evolve. The emergence of online real estate auctions in the residential sector is evidence of that evolution. The technology to support these auctions has long been in place, although it has historically been used by the commercial real estate sector. Now, buyers and sellers of residential properties are flocking to online auction platforms. Keeping abreast of this migration could allow you to be among the first to capitalize on real estate’s new frontier.
Understanding real estate auctions
Auctions have been with us almost as long as commerce itself. The goods that are typically offered at auctions have changed with time, but the basic premise remains the same. Auctions eliminate the hassle of negotiation by offering buyers the opportunity to offer what price they please for a product “as is.”
Sales at online real estate auctions typically follow one of two formats:
- Absolute sales mean that the property goes to the highest-bidding buyer, even if that bid is significantly less than the value of the property. For example, a property worth $100,00 may sell for $49,000, if that is the highest bid.
- Reserved sales mean that the property will not sell unless a minimum bid is met. Once the minimum bid is met, the property will go to the highest bidder. For example, a property worth $100,000 may have a minimum bid of $60,000. In this case, if the highest bid is $61,000, the property will sell for $61,000, but if the highest bid is $59,000, the property will not sell.
There are some special circumstances that may fall outside of the normal format of online real estate auctions:
- Pre-auction bids are sometimes accepted by a seller when a buyer has knowledge of a property before it goes to market and chooses to make an offer.
- Post-auction bids are sometimes accepted by a seller when a property fails to meet its minimum bid. A buyer who was interested in the reserved property, but did not want to bid above the minimum, may contact the seller after the auction and make an offer.
Both pre-auction bids and post-auction bids abide by the motto of the auction: the item is sold “as is.”
Succeeding in Online Real Estate Auctions
Auctions can present an exciting opportunity to snag a property at a reduced price. However, they are also infamously chaotic and ripe for mistakes. Take advantage of the pros of auctions without suffering from the cons by abiding by these guidelines:
- Examine the property and disclosures about the property as closely as possible. Sometimes, properties will be open for viewing or disclosures will be released prior to an auction. Do not miss these opportunities. When you get to the auction, you will be buying a property “as is,” so it’s important to know as much about that property as possible beforehand.
- Go in with a maximum bid in mind. Bidding wars can be wildly exciting. Heart rate increases. Dreams flash before your eyes. The auctioneer sings faster and faster. Do your best to keep a clear head, and remember that the value of the property is going to be determined by future buyers, not by your rival who is shouting out higher and higher prices from across the room. Do not bid more than what you have already estimated the value of the property to be.
- Make sure you have enough cash to back up your bid. Outside of real estate auctions, properties are usually sold with a financial contingency. If the buyer is not able to get a loan for the amount of the price, they can back out of the deal. This is not the case in an auction. You bid what you can pay for, and you better pay.
Keeping with the times almost always leads to a better shot at financial success. Learn how to navigate residential online real estate auctions now. Not only will you will be able to capitalize on your knowledge now, you will be a pro among novices when the practice gains wider popularity.