Real estate auctions can be an excellent way for investors to buy fixer-uppers or foreclosed homes and turn them into investment properties. While live auctions have been around for years, online platforms are becoming increasingly popular for buying real estate. In the video below, we discuss the basics of real estate auctions, how they’ve evolved over the years, and the pros and cons of online bidding. Stick around to learn more!
Contents of This Article:
- What Is a Real Estate Auction?
- How Do Online Real Estate Auctions Work?
- How Have Auctions Changed Over the Years?
- Pros and Cons of Online Real Estate Auctions
- Protect Your Investment Property With BMG
What Is a Real Estate Auction?
A real estate auction is a method of selling property through a public bidding process. This allows potential buyers to compete against each other with their bids to purchase a property. Properties are sold at auction for several reasons, whether it’s a foreclosure, an owner wants to sell their property quickly as-is, or they have to forfeit the property for other reasons.
That said, auctions can be conducted in person at a physical location or online through digital platforms. Additionally, the property in an auction can range from residential homes, commercial buildings, land, foreclosure properties, distressed properties, and more.
Buying auction homes is an excellent way for investors to expand their portfolios. However, it’s crucial to understand the risks involved in an online auction. For instance, if you don’t know how auctions work or don’t do the proper research, you could find yourself investing in a money pit. Next, we’ll review how real estate auctions work and some key processes.
How Do Online Real Estate Auctions Work?
First, if you’re interested in buying real estate from an online auction, you’ll want to find websites that offer them. Some popular sources for buying homes online include Auction.com, RealtyBid.com, RealtyTrac.com, Foreclosure.com, and Hubzu.com.
You must create an account or register for the auction to participate in the bidding. Then, you’ll want to search for investment properties to bid on. When doing this, reading the fine print and learning every detail you can about the property is crucial. Additionally, you’ll want to find the starting bid, the auction date, and how you can finance the property.
On auction day, you’ll want to log into your account and verify the auction details of the property you’re interested in. When it starts, an initial bid will start the auction. Then you can watch the bidding process and place bids of your own. However, keep in mind that there may be rules regarding “incremental bids,” where each bid must be increased by a certain dollar amount.
For instance, if the incremental is set at $10,000 and the initial bid is $200,000, the second must be increased by at least $10,000, making it $210,000. Throughout the auction, participants can monitor the current highest bid and receive updates on the bidding activity.
Once the auction ends, the highest bidder at the specified time is declared the winner. Then, it’s time to finalize the transaction according to the terms and conditions described on the site. Usually, the winning bidder must pay a deposit and the remaining balance within a specified timeframe. The length of the closing process may vary, but once it’s over, you’ve won yourself a new investment property.
How Have Real Estate Auctions Changed Over the Years?
Real estate auctions used to only take place in person at an auction venue. However, real estate auctions have evolved significantly over the years, integrating technology, expanding accessibility, and offering more transparency. These changes have made auctions a more attractive and effective method for buying and selling real estate.
- The Transition from Offline to Online
- Increased Transparency
- Enhanced Accessibility and Participation
- Integration of Technology
- Streamlined Sales Process
The Transition from Offline to Online
One of the most significant changes in real estate auctions is the transition from in-person auctions to online platforms. Traditionally, real estate auctions were conducted in physical auction rooms, which limited participation to local bidders.
Now, with online platforms, real estate auctions can be conducted virtually, allowing anyone to participate. As such, the transition to online auctions has significantly increased the efficiency and convenience of buying real estate.
Online auction platforms give comprehensive information about properties being auctioned. For instance, they’ll include detailed descriptions of properties, photos, virtual tours, and critical legal documents. Additionally, you can generally view this information before the auction starts, giving you more time to decide what you’re comfortable paying for.
As such, bidders have access to due diligence materials, enabling them to make informed decisions. After all, transparency is an integral part of online bidding, especially if you don’t see the property firsthand.
Enhanced Accessibility and Participation
Online platforms make real estate auctions more accessible to a wider range of buyers. After all, bidders can participate from anywhere with an internet connection, eliminating the need to be there in person. Increased accessibility has attracted more investors and buyers, resulting in more competition and potentially higher sales prices.
Integration of Technology
Online auction platforms leverage advanced technologies like artificial intelligence (AI), virtual reality (VR), and data analytics to optimize the auction experience. For instance, AI and machine learning algorithms can streamline the auction process by providing buyers recommendations and optimizing sellers’ pricing strategies.
Additionally, VR technologies can transform the way properties are shown in online auctions. Buyers can have immersive virtual tours of properties, allowing them to see all the details without visiting the physical location.
Streamlined Sales Process
Online real estate auctions typically have set timeframes, creating a sense of urgency and speeding up the sales process. In turn, it eliminates negotiation periods and reduces the time it takes to complete a transaction. Additionally, non-contingent sales with predetermined terms and conditions streamline the process and reduce uncertainties.
Pros and Cons of Online Real Estate Auctions
Online real estate auctions offer several advantages for buyers and sellers. Nevertheless, buyers and sellers must do their research when deciding whether to participate in or utilize real estate auctions. Here are some of the main pros and cons of online real estate auctions.
Benefits of Online Auctions
- Accessibility- Online real estate auctions make it easy for people to participate in an auction from anywhere. That said, greater accessibility can attract a wider pool of potential buyers.
- Convenience- Online auctions provide convenience and flexibility. Participants can bid from the comfort of their homes or anywhere with an internet connection. As such, it eliminates the need to go to a physical location to bid.
- Competitive Bidding- In an online real estate auction, bidders can see the current highest bid and respond quickly with higher offers. As such, it creates a competitive bidding environment, which can drive up the sales price and benefit the seller.
- Time and Cost Saving- Online auctions save time and costs associated with organizing and attending physical auctions. Sellers can reach a wide audience without extensive marketing and advertising efforts.
Disadvantages of Online Auctions
- Limited Physical Property Inspection- In a real estate auction, you buy the property as-is. That said, online auctions can limit the ability of potential buyers to physically inspect the property before bidding. After all, virtual tours and photographs may not give the same level of understanding as an in-person visit.
- Connectivity Issues- You’ll need a stable internet connection to participate in an online auction. As such, technical or connectivity problems can disrupt the bidding process, causing some investors to miss out on a deal.
- Competitive Pressure- The competitive nature of online real estate auctions can lead to increased pressure. In turn, it may drive prices higher than anticipated for buyers. So, it could be a disadvantage if you’re seeking a good deal.
- Limited Control for Sellers- Sellers putting their properties up for auction may have less control using online platforms. After all, they rely on the auction platform to effectively manage the bidding and sales process.
Protect Your Investment Property With BMG
Buying investment properties from real estate auctions is convenient, especially with advanced technology. However, that doesn’t mean you can get away without due diligence. Learning as much as possible about the property is important before placing bids. Luckily, online real estate auction platforms make gathering the information you need to make an informed decision easy.
If you’re looking to buy an investment property from a real estate auction, you’ll want to consider how you’ll manage it. Whether you own one rental property or several, setting aside time to facilitate and manage each process can be challenging.
Bay Property Management Group offers comprehensive rental property management services in and around Baltimore, Philadelphia, Northern Virginia, and Washington, DC. So, whether you’re looking for better marketing efforts, tenant screening, maintenance processes, and more, we’ve got it covered. Contact BMG to learn more about our services today.