Learn how to navigate the exciting world of online auctions
By Michelle Markelz
As the pandemic revealed, many things that once took place in person can be accomplished online—and auctions are no different. But those seasoned in online real estate auctions know that just because you can bid on a house online, doesn’t always mean you should.
Verna Littleton, CRS, broker with KAIZEN Realty, LLC, serving the Memphis, Tennessee, market, has been involved in online auctions for about five years and has participated in about 40. We sat down with Littleton to learn the ins and outs of online auctions and how to avoid some of the biggest pitfalls.
Q: Have online auctions been on the rise? How did the pandemic affect their popularity?
A: Since the pandemic, auctions have really taken a hit—both live and online. Normally, there would be a good number of properties for purchase, but moratoriums and forbearances have really decreased inventory. The government and a lot of mortgage companies have been working out payment plans or put foreclosures on hold, which has kept inventory low.
Q: What are some of the benefits of online auctions?
A: When you’re bidding online, you feel more confident. It’s not like a live auction where you’re in the same room with the people you’re bidding against. Before I was experienced at bidding, it was intimidating to bid at a live auction. With online auctions, you can bid on your phone from the comfort of your home.
Q: Low inventory must make bidding very competitive. How should buyers think about their budget when bidding in an online auction?
A: It’s good to have a budget, but just know you’ll probably go over it—especially with low inventory and more people bidding. Most people try to estimate their repair budget and what they’ll be able to sell the home for after repairs, but that’s hard to do when you haven’t seen the property. Usually, there are two types of buyers: those who’ll renovate and those who’ll rent it out. The buyer planning to rent the property may not do a rehab and may be able to make more return over the long-term, so they may have a higher budget.
Q: It sounds like there is a lot of risk with the unknowns of online auctions. Would you say the average homebuyer is better off purchasing traditionally?
A: Yes. It’s just too much for a regular homebuyer to absorb. They need to buy a property in good condition. With foreclosures, there are a lot of unanswered questions. If something goes wrong, they’re going to be looking for someone to blame—and it’s likely going to be their agent. Even if I get a buyer who is adamant and wants to pay cash, I advise against it. I specialize in working with investors who may have more financial reserves and are accustomed to taking chances.
Q: You noted that it’s hard to determine a rehab budget without seeing the property. What other blind spots do online auctions have?
A: I tell people considering online auctions, “Buyer beware,” because they most likely will not be able to inspect the properties. That means you won’t know what repairs are needed. The bank doesn’t have to make disclosures like a regular seller because they don’t know about them either. Whenever you can get into a property, I encourage buyers to do their due diligence. In some instances where the warranty deed is issued, the buyer is able to do a title search, but in some online auctions, you have to do your own research and determine if taxes are current. You could be inheriting delinquent taxes or liens on the property. I strongly recommend that anyone interested in online auctions work with an agent to help them do this due diligence.
Q: How do you recommend staying calm during an online auction?
A: There’s nothing like the thrill of being in the middle of that auction. It’s almost like a pride thing—you’re always thinking, “I don’t want to lose this over $500.” My advice is, whatever budget that you set, stick with it. Don’t get caught up in the hype. When that adrenaline starts flowing, have a mental stopping point.
Online Auction Due Diligence Checklist
1. Visit the property. Even if you can’t officially inspect the property, go there and visually inspect what you can or have an agent go on your behalf. Try to determine how well the house has been maintained from the exterior. You can identify some big-ticket items, such as the quality of the roof.
2. Check for tax liability. If there are delinquent taxes on the property, you inherit those when you buy it at auction.
3. Determine if the property is vacant or occupied. If it’s occupied, you’ll have to evict the occupants. If it’s vacant, and utilities have been off for a long time, you may need to have the utility providers come out and inspect, which may uncover code violations.
For more quick takeaways on online auctions, visit NAR.realtor/auctions.
Photo: iStock.com/Natali_Mis
