Many investors pick up properties from auctions. The obvious auctions are the foreclosure auctions at the courthouse steps. Depending on the foreclosure rules for each state, auctions are where banks can unload their foreclosed properties.
Normally it’s investors who make up the bulk of auction buyers. They are all looking for a deal they can fix & flip or rehab into a rental property. Obviously, the investors are wearing normal clothes when they attend the auctions – not pajamas.
Thanks to the internet, though, more and more investors are attending auctions virtually. And that’s partly because more and more property is being sold at auction – not just foreclosures.
Sure, there are plenty of foreclosures still being auctioned off. But increasingly we are seeing lots of other properties going up for auction as well. These properties include luxury homes and commercial real estate offerings. Some developers are even auctioning off their new builds.
Virtual auctions do mean you can ‘attend’ them by sitting in front of your computer in your pajamas. We don’t recommend that’s all you do. There is still some due diligence that needs to be accomplished…
The Obvious Name for an Auction Website
One of the biggest websites for online real estate auctions is – you guessed it – Auction.com. Auction.com is part of the Ten-X company that also has the websites Ten-X Commercial for buying and selling commercial real estate and Ten-X Homes for simplifying residential transactions online.
Auction.com specializes in online auctions of properties. Other sites that provide similar services include Hubzu and Williams & Williams. We thought we would stick with Auctions.com for this lesson to give you an overview of the process.
Whether you are buying property from an online auction or one you attend in person, smart investors take time to do some due diligence. Auctions generally don’t allow for as much due diligence as you would like, so be careful.
In particular, many of the homes for sale at auction still have the owners or rental tenants living in them. That means you can’t go in them to look around. Even walking onto the property is a criminal offense.
An interior inspection for foreclosures is generally a big no-go. Your inspection may only consist of checking out the neighborhood and driving by the property to review the exterior. This may also only apply to short sale and foreclosure properties.
If someone is selling a regular property at auction, they might invite you to conduct an inspection or even hold an open house.
After checking out the property, you will also want to review a bunch of documents and do further due diligence. Auction.com provides documents related to the transaction for you to review, but is not required to do so.
The smart thing to do is to hire a title agent to do a title search for any property you are serious about. That should give you a good idea whether there are further liens you might need to pay off. Also, research whether you can get title insurance for the property, to ensure nothing was missed in the search.
Time to Bid
Initially you will want to create an account. Once you have an account, you will be able to:
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Set up custom alerts for properties that meet your criteria
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Save your search results
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Receive announcements about upcoming auctions
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Get advance notice of new auctions
Your free account does not automatically register you for all the auctions on Auction.com. You will still need to register for any auction you wish to participate in. Realize that when you register for an auction, they will be asking for your credit card information.
The registration process is mostly available for virtual auctions online. Bidding at live auctions just means going to the courthouse steps and registering there. Auction.com is helpful for live auctions by providing the date of the auction and letting you know which properties will be up for bid.
For the virtual auction, all you have to do is navigate to the page for the particular property on Auction.com. Auction.com will provide what the latest bid amount is. If you agree that the amount is below your max, you can confirm the ‘Next Bid’ as your bid amount. The auction will continue until one bidder is left.
Many of the properties have a ‘reserve’ price similar to what you see on eBay auctions. If the bidding does not meet the reserve price, the property will not be sold.
Auction.com does reserve the right to put in bids themselves to help ‘encourage’ the auction participants to meet the reserve. Auction.com will stop their bidding once the reserve is met.
You Won! Now What?
Let’s first talk about what happens if you don’t win...
When you registered for the auction, Auction.com puts a charge of $2,500 on your credit card to hold as a deposit on your bid. If you are not the high bidder, your deposit is released within a week.
Now let’s say you are the high bidder. In that case, 1 of 3 things can happen:
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If the bid is much lower than the reserve, or the seller doesn’t like the bid, the property isn’t sold.
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If the bid is close to the reserve price, the seller might reconsider and take the highest bid.
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If the highest bid is above the reserve, and the seller doesn’t require any further review, the property is yours.
Now that you've won the auction, you will need to sign the purchase contract, wire your earnest money deposi, and provide proof of funds. Your bid deposit will be automatically released. An escrow agent with Auction.com will work with you to close the transaction, typically within 30-45 days.
Final Note
Buying properties at auctions, whether live or virtual, is not the easiest or safest process. But, that doesn’t mean people have not made a ton of money purchasing this way. Just make sure you know what you are doing, and be careful. This is probably not the best path for new investors.
Going Once, Twice…
Tell us about you virtual buying at an online auction in the comments section below.
Attend an Auction – Even if you don’t bid, check them out to learn how they work.
Perform Your Due Diligence – Whether it’s an auction or some other way to buy, you should ALWAYS research what you are getting yourself into.
Learn How to Remove Tenants – Once you buy a property, you may need to remove the people living there. Make sure you know the process for removing them.
JP Moses
is a real estate investor in Memphis, TN, with experience ranging from land lording to note buying, rehabbing, and wholesaling. However, wholesaling is the area that he enjoys most and where he bring the most experience and expertise to his students.