So, You Want To Buy A Property Off Auction.com?
I purchased a home off of Auction.com a couple of weeks ago. When I tell people where I found the property that I am renovating the follow-on question is “how do you purchase a property off Auction.com?”. I am not an expert but am willing to share my limited knowledge. Use this blog to increase you understanding and to develop and ask questions as you go forward.
At a high level, the process involves registering for auction.com to gain log on capability, registering to bid on a property, bidding, winning/losing the bid, and closing on property. I will cover each of these steps in the process. This post is relative to single family homes only. On Auction.com, there are three categories of single family homes.
Homes Still Owned by Origianl Property Owner
First, are the homes that are listed coming up for live auction, generally at the county courthouse. These properties are still owned by the original property owners (pre-foreclosure properties). I won’t be discussing how to purchase these properties for they are not available through Auction.com, only advertised on Auction.com.
Homes Owned by the Bank
The second category of properties are on-line auction properties through auction.com and you can go look at the properties before the on-line auction. The third category of properties are on-line auction properties that you cannot go look at (inside of property) before the on-line auction. The second and third category of properties are bank owned. They are properties that did not sell at the county courthouse and now the bank owns them (foreclosed properties). Remember these two categories of properties as we go forward with this blog.
Registration
The first step in the process is to register on auction.com to gain log on credentials. Just follow the prompts for information. You can register even if you don’t have a real estate license. However, you will need to be represented by a Realtor if you want to go look at a property. If you have a Realtor that you prefer, they must be registered on Auctio.com as well. If you don’t have a Realtor, one will be assigned to you. The Realtor that will be assigned to you is generally a local Realtor that has registered to represent clients for Auction.com.
Auction.com does a good job of describing how to use their website. You can find a list of “participation terms” and you should search that out on their website and familiarize yourself with the terms. You will gain a better insight into using Auction.com when you do.
Reserve Price
I have participated in several auctions on auction.com. One thing that you need to understand is that the seller sets a minimum price they will accept for the property called the “reserve price”. The sites tells you if it has been met or not. Then, even if it has been met, the property may or may not sell. The seller can decide not to sell the property. I have seen properties, auctioned many times because the reserve price was not met or the seller decided not to sell at the final bid price.
Gaining Access to a property.
On one property I was interested in, I was able to see the inside of the property. In order to do that I had to request a code from auction.com. The site explains how to do that. Since I have a Real Estate license and was registered on the site as Realtor, I did not need to go through another Realtor. I received my code for the lock box on the house and when in and looked at the property. This part of the process is just like working with Realtor when you look at any house that is up for sale and listed in the local MLS.
I understand that if you are not a Realtor, the code would be sent to the Realtor you identified when you registered or to the Realtor that was appointed to represent you on this particular house if you did not register a Realtor that does represent you.
I also have experience with bidding on a property that you cannot look at the inside of the house. This is a riskier process for you do not know what the condition of the inside of the property is. The owner of the property will choose to do this if the inside condition is poor or below the standard that a retail buyer would accept. These properties are more for investors who expect the condition to be poor and plan to renovate the property.
Bidding
The bidding process is rather simple. You have to register as a bidder for each property you plan to bid on. You have to give you Credit Card information for each property you plan to bid on. If you are the winning bidder and you complete the sale, then no fees are charged to you credit card. If you are the winning bidder and do not complete the sale, then your credit card will be charged a $500 cancelation fee.
From my experience, the bidding process is spread out over a 3-day timeframe. The real action relative to bidding in reality starts on day three. During the last hour of the auction the bidding gets busy. To keep from over spending, know ahead of time what your absolute highest bid will be and don’t go over it. It is easy to get caught up in the excitement of the bidding process and spend more than you should of.
Closing
The closing process is simple but does vary from the normal closing process that you would experience if you bought a property through more normal means. The main difference is the fees you will be charged. Auction.com clearly tells you the fees to expect. The big difference is that in a normal transaction, the seller covers the fees but when buying through auction.com, the buyer covers the fees. These fees include a Buyers Premium, Broker coop fee, and escrow fees. Again, these fees are spelled out in the details of the property and the rough amount of the fee is also listed.
On the last property I bought, the buyers premium was zero dollars, the Broker coop fee was zero dollars and the escrow fee was approximately $1000 dollars. In addition to these fees I had the normal buyer fees for my local escrow company. One thing to look out for is that auction.com will tell you what the Broker coop fee is. If it is zero, then you Realtor (Broker) that you are working with will get paid nothing for the sale of the property.
One more unique thing about the closing process is that the owner of the property is most likely located out of your local area and they will most likely want to use a Escrow company out of your local area. This is not a problem but will make communication a little a more difficult. On the property I bought, I used a local escrow company and they worked with the other escrow company to close on the property. However, I was active in making sure all documents were where they needed to be when they needed to be there.
Summary
I found the process of using auction.com to be relatively easy. All steps of the process were clear and closing went smoothly. I have friends who complained about using auction.com and those complaints were mainly around two areas. The first was winning the bid but the seller deciding not to sell. The second was winning the bid on a property and when they finally saw the inside of the property, they were disappointed with the condition of the property. However, auction.com clearly explains the bidding process. In my opinion, purchasing a property through auction.com is a little more riskier but if you are patient and do you due diligence and purchase knowing you have more risk, then using auction.com is a reasonable way to purchase properties.