Auction.com, Hubzu & Homesearch- What You Have to Know.

As investors, there are a lot of different avenues when it comes to acquiring properties. Whether you’re a landlord looking for your next rental or a rehabber looking for the next flip chances are you’ve stumbled across these properties. While these homes are tempting with their low starting bid amounts, if you’ve never scored a deal through an online real estate auction site- here are 12 things you should know.

1.) Contrary to popular belief these types of online auctions are not foreclosure auctions unless it’s specifically listed as a trustee sale; they’re not a substitute for the good ol’ bidding war on the county courthouse steps. These properties have already been taken back by the bank and are considered REO properties.

2.) The starting bid on the auction website and the MLS list price (if applicable) are meaningless. The bank has a reserve price they are looking to get for the property. Sometimes they will furnish this information, but in most cases this information is not made public to bidders. This amount is set by the bank’s asset manager.

3.) Before you can even bid, Auction.com & Homesearch.com require a $2500 deposit so have your credit card in hand as they will place a hold on your funds.

4.) There are buyer premiums- they range from 3%-5% and they base that on the winning bid amount. Also, some of these also charge a technology fee and other misc. fees. These “premiums” are non-negotiable. Account for all of these when running your numbers because they can result in a huge chunk of cash.

5.) Some properties on these websites offer NO contingencies- this includes inspection contingencies. Conduct your inspection prior to bidding if this is the case. Some may be occupied & if so you will have no physical access to the property. If you’re fortunate enough to have found one that allows an inspection contingency, some may not activate all utilities.

6.) Some of these properties call for cash only- and they mean dollar bills in your account. If you win an auction for cash only property, you will have to provide a bank statement showing you have the funds to close.

7.) The bank is allowed to bid against you. It’s listed in their disclaimers.

8.) Just because you’re the highest bidder does not mean you’ve won the property. Even if the reserve was not met- they still could call you and try to negotiate a deal.

9.) If you can’t close on time, be prepared to shell out some big bucks for an extension. Amounts vary and will be listed in the purchase agreement.

10.) If you purchase an occupied property, you may inherit a tenant or the owner.

11.) If you’ve won the auction, a service rep will contact you right away. A lengthy purchase agreement will be emailed to you and will be required to be sent back within 24-48 hours. With that, you’ll receive instructions on how to send your certified earnest money deposit that will vary between 3-5% of winning bid amount.

12.) If the reserve wasn’t met during the auction you will most likely see these properties cycle through many auctions and come back at different prices which may be higher or lower than before.

Despite all the hoops, these sites can be a great source for deals and as always be sure to stick to your numbers.

If you have experience with these types of real estate auction sites- what else would you add?

- Lisa Kohl is a real estate investor and owner of REI friendly We Know Boise Real Estate team in Boise, Idaho.