What is an Online Foreclosure Auction?
The online foreclosure auction could very well permanently upset the traditional in-person property auction sooner than you may think. In recent years, e-commerce has exploded in popularity to such an extent that it has become an inevitable – and indispensable – means of completing transactions of any sort.This statement not only applies to businesses either, as this fact is becoming increasingly true for personal transactions as well.
The key to the rapid and widespread adoption of the e-commerce system is its ease of use. The entire transaction, from browsing to payment is done right at your fingertips wherever you need, and can quite literally be completed within seconds. Additionally, the popularity of added perks, bonuses and discounts offers associated with completing your transaction online makes the idea even more attractive to customers.
Internet counterparts to brick-and-mortar stores are not the only type of shopping experience consumers have been flocking to in droves lately, however. Online auction sites, of all shapes, sizes and spanning practically every imaginable vertical (many of which I was genuinely surprised to discover myself) are gaining astronomical popularity amongst consumers.
Among the seemingly ever-expanding list of industries, verticals, and product types for whom online auctions have been driving HUGE amounts of traffic are Online auctions of foreclosed homes. It is true that most people still prefer to bid on Real Estate directly at the county courthouse, as it tends to give the auction process, in many of the bidders’ minds, more of a sense of “legitimacy”. Most people do still need some sort of reassurance when it comes to a very large potential monetary outlay such as buying a house.
That being said, there are TONS of real benefits to the online auction format, even (and arguably especially) in the case of bidding on a potential real estate purchase, a surprising amount of home seekers, home sellers, lenders,and municipalities clearly agree.
Let’s quickly examine a couple of the key advantages to online foreclosure auctions for each side of the transaction:
~ Benefits for the bidder~
From a bidder’s point of view, it is the unmatched convenience and sense of control offered by an online auction that attracts many to online foreclosure auctions.. It is not uncommon for foreclosure auctions to last anywhere from a few days to (in rare cases) several weeks, and the bidder is free to bid anytime, and from anywhere in the world. Most computer-savvy consumers, when given the option, would much rather make most types of purchases on their own time and on their own terms, and from wherever they choose. Even though, historically, this statement didn’t quite apply to major purchases such as buying a house or land, more and more consumers are choosing to opt for sacrificing the sense of reassurance gained from bidding in person at a government office in favor of the convenience, control, and often times even cost savings of bidding on their own terms and in the comfort of their own home or office.
The flip side of that is, of course, they are benefiting by trading a potentially negative experience:
An event that can often turn into chaos and calamity at a government office, which is also not likely to be conveniently located, with the collective synergy and fear of loss fueling intense (and stress-inducing) bidding wars that drive the selling price far beyond what would likely play out online (and depending on your location and the time of year, all this could be happening in really bad weather as well, further souring the experience)
For a much more positive overall experience:
Bidding and (ultimately) making their purchase in the comfort and convenience of their own home – in their pajamas or even while enjoying a bubble bath if they want, without the synergistic pressure or sense of urgency inherent of all in-person bidding auctions, and instead having the luxury of being able to take some time to think, and reassess the situation before deciding whether or not to place their next bid.
This, in itself, (in my humble opinion) is the strongest pro-online foreclosure auction argument, as it also eliminates the likelihood of very poor, uninformed and impulsive bids (that would never have otherwise been placed) that are the direct result of the pressure and urgency that comes standard with any in-person auction.
Additionally, the selling price is not as likely to inflate – either at the speed or overall volume – that it would at an in-person auction setting, as the buyers are much more likely to be bidding from a more logically-centered perspective, as opposed to an emotionally-charged and time-limited headspace.
This can potentially save buyers TENS if not HUNDREDS of THOUSANDS OF DOLLARS on a final selling price on a home they DO actually want or, alternatively, tens or hundreds of thousands of dollars on a complete mistake of a purchase that they would never have made had they been allowed 20 minutes outside of sheer pandamonium to reflect on the idea.
Online auctions also provide the potential for a much wider selection of homes, without your options being limited to a particular county, state, or financial institution’s inventory – but in any location one prefers, and from any number of lienholders.
The prospect of phenomenal deals on homes, often with winning bids of one-third of the property’s value or less are what makes, and has always made, foreclosure auctions a popular and sought-after option in the perceptions of savvy, well-connected home seekers and real estate investors in general. The muriad differences in physical location, levels of control, and likely headspace of the bidders during an online foreclosure auction make that perception unequivocally true.
As always happens when a concept such as this explodes in popularity, there is a similarly viral increase in the number of real estate auction websites available to find and bid on these properties. Many of websites are rich in variety, and genuinely offer high quality listings, and can very well prove to be THE site you found your new house through. Others – Not so much…..
Many such sites provide, although often for a nominal fee (which ultimately eliminates insincere bidders, and reduces the risk of fraudulently manipulated bid inflation by competing bidders or sellers’ co-conspirators) and also inherently reduces the amount of potential competing bidders overall. These facts, 9 times out of 10 translates into a winning bid which will ultimately be lower than it would otherwise have been, and substantially so. The difference is often staggering.
Paid auction sites also lower the potential for abuse of unfair automated tactics by tech savvy bidders.
Here’s what I mean:
An unscrupulous auction participant could deploy an automated bidding bot to instantly detect and beat the last placed bid on 150 auctions simultaneously until it reaches certain (inflated)
To unfairly and by dishonest means eliminate as many potential competitors as early in the auction as possible, either by making them overspend early on and therefore unable to afford to bid on a second property later in the auction (which would not be an uncommon thing for a real estate investor to do), or by discouraging and intimidating other bidders, especially first or second time auciton participants, making them very likely to disengage with this auction, or simply give up on the idea altogether,,
The Motive for this Grand-Scale Manipulation:
The ultimate goal of this scheme is to give them the unfair advantage of a much smaller-than-would-otherwise-be pool of bidders for the property(ies) toward the middle and end of the auction, theoretically allowing them to snatch them up for a fraction of the already below market value otherwise probable winning bid.
(driving upthe prices on some properties to make it less likely that a competitor will bid on a second property later in the auction, and much more likely that a number of other bidders would become discouraged and simply disengage early on. All of this, of course, without the need for them to interact with any of these sites whatsoever. They may very well be watching a South Park marathon and occasionally glancing at a “stats” dashboard to determine which one(s)of these 150 auctions they’ve been fraudulently manipulating they have managed chase the most bidders away from .
I assure you, as extremely complicated and involved as the above scenario may sound, the uncomfortable truth is that it’s completely accurate. Common. And I wish I could say that was an exaggerated example, but it’s not.
Paid to participate auctions make this (otherwise likely, and obnoxiously common) scenario that sours pretty much every type of online auction in every vertical become less likely if said bot-owner would have to pay for registration to each of those 150 sites and manually log in to each one of them individually. A major point to consider here is the difference in the average winning bid for a similar property in a smaller paid auction vs a much larger, free public auction (which is vulnerable to junk bids from lookie-lou’s with no intention of buying and bid manipulation by means of automated software).
All facts considered, the average registration for such sites of roughly $40-$75 seems completely negligible to most serious home buyers and real estate investors. We highly recommend NotRent.com as a listing source, both for home seekers and for inverstors, for a few reasons.
- They maintain an expansive database of pre-foreclosure and auction listings (never less than 10,000 active listings!)
- Their pricing is a HUGE bargain at only $45 per month for unlimited access to and use of their entire database of listings. There are no minimum membership length requirements either! (In theory, you could register, find your new home within a month, cancel,and would have only paid $45 to save tens of thousands of dollars!)
- To sum it up: Ease of use. Their interface is dead simple and intuitive – took absolutely no time flat to find what I was looking for my first visit.
- Friendly support staff and quick response times. When you have found what you’re looking for, and don’t need the service anymore, or if for some reason you do encounter a question or issue you need help with, it is great to know that someone will be there providing quality assistance when needed.
For most, opting for this type of site as opposed to the free alternative becomes a no-brainer. After all, as the saying goes:
“The cheapest solution is ultimately the most expensive!” .
~ Benefits for the Seller ~
Foreclosing lenders (typically banks or government agencies) are always (and will always be) in a hurry to sell the property in question, in order to recover their losses by any means necessary.
From that perspective, the best option for selling these foreclosed homes would be to hold an online auction, as the overall procedure takes less than a month from start to finish (versus placing it on the open market and PRAYING for a buyer within the next YEAR). This method also gives them the potential to cast a much wider net of potential buyers than they would otherwise have, theoretically even soliciting and attracting an international pool of visitors, rather than being limited to home buyers and investors from their respective county.. Once the details of the property are posted on the website, the bidding starts, and will close at a predetermined time for the highest active bid.
Additionally, the overhead costs associated with an online auction are virtually nonexistent, in stark contrast to the ultimate cost of holding an on-site, in-person auction..
For the most part, listing a property in an online auction would go one of three ways for the lien holder:
- Completely Free to list, the site is sustained by means of registration fees from bidders and advertising revenue
- No Up Front Fees/Costs whatsoever – pay nothing until when/if it sells – this type of site typically charges a fraction of a percent of the winning bid (half of a half of a percent, or something similar).
- Flat Fee listing: Paid to list, but as a flat fee (typically anywhere from $60-$200, which is ultimately less than option B works out to, and sites using this pricing model typically provide additional marketing/advertising/promotion and even syndication services to give your upcoming auction as much exposure as possible, therefore as many bidders as possible, which typically means the highest possible winning bid.
Typically, you can spot a good, high quality auction site by their attitude towards and responsiveness to sellers. GOOD auction sites. often work very closely with the sellers. If the home gets a final bid below a predetermined MINIMUM selling price, the site’s staff would assume an intermediary role with the buyer and seller ensure the seller receives at least their minimum selling price.. A good auction site owner tends to become a skilled arbitrator, meaning these negotiations, more often than not, will end favorably, on a satisfactory note to both the buyer and the seller.
Although making a major,life-altering purchase, such as real estate, following a sequence of actions that are not very different from the sequence of actions you would take to purchase a handbag on ebay may initially come across as anywhere from reckless to unrealistic to flat out foolhardy, upon closer examination it becomes almost undeniable that this very option is,hands down, the best possible method for both the buyer and the seller.