Purchasing real estate through online auctions

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It is not the usual case for a buyer to bid for a new home or sell a building through online auctions, even with the spread of the internet. However, this spread also means you will eventually come across online auctions at some point in your life, and you will need to know how to handle them effectively.

For instance, you might be searching for your dream home online and found one, only to find that the small print says you will need to go through an auction to purchase it. This immediately raises some questions – do you pay cash? How does an auction work, especially when dealing with real estate? Can you lose your deposits?

What does it mean?

Online auctions are different from the usual format of an auction, because all biddings are conducted on the internet. In addition, not all homes you will find for sale are foreclosures, as some are short sales. Others can be bank-owned homes, and the bank is selling them off, and so on.

What to keep in mind

Opening bid price and reserve price

The online bid price is only there to get your attention and have you interested, but it is not necessarily the figure you will end up paying since it does not have a close relationship to the market value. In fact, it can even be 50 to 75% of the market value (what the seller is hoping to get).

To get the actual value of the building, you will need to look at the comparable sales, which are sales prices of any similar home that was sold in the recent past.

The reserve price, on the other hand, is what the seller expects to get from the bidding process. It is usually kept secret, and if nobody offers it, they are not required to sell the building.

The bidding process

The first thing to note is that you do not stand to lose money in online auctions, as long as you are careful in understanding and following the rules. Once the seller accepts your offer, you must realize that any deposit you make is at risk if you decide to cancel the transaction later.

The firs thing to do is establishing an account on the website, which also allows them to have basic information such as your credit card number for deposits. The second is taking your time to watch the process and understand it, so that you know what you are getting into when you go for any auction online.

Short sales

If this is the case, it means that the seller already got an offer, accepted it, and now waits for approval from the bank to complete the transaction. The bank then creates a short sale to see if they can get higher offers through the auction website.

If you happen to work with a real estate agent, you can let them help you find a home through online auctions as well.

Final thoughts

Buying or selling a home through online auctions may be a new field for many people, but it is possible to go through the process smoothly as long as you are prepared.