Understanding Online Real Estate Auctions
Online real estate auctions usually take place because a seller wants to sell their home to the highest bidder as quickly as possible or because a bank has foreclosed on a home and wants to get the highest sale price possible for the home to reduce the amount of loss the lender suffers. Regardless of whether an individual or a lender is auctioning a home, that auction will fall into one of three categories: In all cases, once an auction is complete the seller must approve the winning bid. That approval can take 15 days or longer, and in some cases can result in the house being re-auctioned in an attempt to increase the amount of the winning bid.
Fees Associated with Online House Auctions
When purchasing a home through an online house auction you typically don’t have to pay real estate brokerage fees, however, there are some costs specifically associated with online auctions:
Buyer’s Premium: The fee the auction site charges for conducting the auction. This fee is usually between 5-10% of the final purchase price of the home, or it can be a flat fee of $1,000 or more. Most auction sites use both options with the buyer paying the higher of the two amounts.Transfer Fees: These fees can be $1,000 a more, depending on the site you choose to purchase through.Auction Service Fee: Some sites change this fee instead of a Buyer’s Premium. The fee can be $3,000 or more.Technology Fee: This is a fee charged to the buyer associated with the cost of operating the auction site. It can cost you an additional $200-$500.Earnest Money: This fee can be applied to the final total of the winning bid when payment is made or refunded to a bidder who doesn’t win the auction. It is a variable amount. Most sites require 5%-10% of the total winning bid as payment in earnest money with $2,500 or more being charged before you can bid (sometimes called a Bidding Deposit) and the remaining due within 24 hours of the auction end. In the event that you cannot pay the full amount of the winning bid in the required timeframe (usually 30-45 days), you lose your earnest money.Additional Miscellaneous Fees, Liens, or Encumbrances: You could also be responsible for commissions, closing costs, tax liens, or other expenses at the time of closing.
Buyer Expectations When You Win an Auction Home
If you do find the right home and win it at auction there are some expectations you can plan to fulfill. For example, you may have to prove your ability to pay for the home you win either by providing proof of funding or a reference letter from your financial institution. You are also expected to understand that you are purchasing a home ‘as-is, where-is’ unless otherwise stated. This means no matter the condition of the home, you are solely responsible for repairs and updates. You may also be purchasing an occupied home and, once the sale is complete, you will have to go through eviction proceedings — at your own expense — before you can take possession of the home. Finally, some states have Right of Redemption laws you must adhere to. These laws state that the owner from which the house was foreclosed has a given amount of time (usually 6-18 months) during which they can catch up back payments and pay a fee (commonly 20% of the total home value) to regain ownership of the home. Any repairs, changes, or updates you make during that time do not have to be reimbursed to you.
Online Home Auction Sites
If you’ve made it this far, great! All that’s left to do is find the right online bidding site and start bidding on your next home. The following list includes some of the best online real estate auction sites for finding great prices on a new home.
