In an online auction, you won’t find yourself standing on the steps of the county courthouse or packed into a hotel ballroom. You could be anywhere when you bid—at home, the office, even an airport—as long as you have an Internet connection. Bidding can occur 24 hours a day over the course of days or weeks, instead of on a single day.
Online auctions also broaden the types of properties you can bid on: short sales, non-distressed, bank-owned homes (known as REOs), and commercial property and notes.
The steps for bidding in an online auction are similar to a live auction.
Find a property you love
With online auctions, you can search for and bid on properties all over the country. You can even bid on multiple properties at once. Remember, you can always consider getting a free account at Auction.com so you can easily find and buy a foreclosure home near you.
Do your due diligence
Be sure to conduct as much Due Dilligence as is needed to make you comfortable with the property. This could include a title search, and seeking independent advice from a real estate agent or broker, a real estate attorney, or another experienced investor.
Also, visit the property if you’re local. If you have a real estate agent see if they can help you get acccess and if so, bring your contractor with you to help you assess what repairs might be needed.
Register for the auction
Most online auctions require you to register and submit a refundable deposit in the form of a credit card authorization. This simple process ensures that all bidders are serious and motivated. (Don’t worry—you’ll get the deposit back if you’re not the winning bidder.)
Prepare your financing
To expedite the close if you win, start gathering the following documents before the auction:
- Proof of funds or financing information. Although most online auction sites don’t provide financing, Auction.com has a large—and growing—number of homes with financing available.
- Entity documents if you’re bidding under a company name or entity such as an LLC, trust or limited partnership.
- An earnest money deposit, which is usually 5% of the total purchase price and due one business day after the auction ends.
And if you’re the winner?
Be ready for things to move fast. With Auction.com, for example, the contracting department will contact you within two hours and walk you through the online purchase and sale agreement, which shows the total purchase price and the timeline for submitting documents and payments. Make sure that escrow receives your documents and payments on time; otherwise, you could lose your earnest money deposit.
Look closely at the property page for each property you are planning to bid on. Many properties have what’s called a “buyer’s premium,” which is the fee charged by the auction company for conducting the sale, from marketing through the closing. The amount can vary, but it’s usually 5% of the winning bid amount. Many properties don’t have a buyer’s premium because the bank or seller has arranged to pay this fee out of their proceeds from the sale.
It’s a good idea to purchase title insurance. Here’s why: The properties in an online auction often have quitclaim or special warranty deeds that will transfer the bank’s interest in the property to you at closing. The problem is that any undiscovered liens will transfer to you as well! Title insurance protects you from these risks.
Occasionally, you’ll receive clear and marketable title to the property at closing. It depends on where the home is in the foreclosure process. This is another reason why a knowledgeable real estate agent or attorney can provide a valuable service to you.