{"id":108792,"date":"2019-03-22T05:00:59","date_gmt":"2019-03-22T11:00:59","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=108792"},"modified":"2021-03-16T14:52:57","modified_gmt":"2021-03-16T20:52:57","slug":"hidden-pitfalls-online-auctions","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/hidden-pitfalls-online-auctions","title":{"rendered":"3 Hidden Pitfalls of Online Auctions (& How to Avoid Them)"},"content":{"rendered":"

When you buy property on online real estate auction websites, you can lose your deposit without closing on the property or even end up with a property you can’t sell. Here are three common issues with internet-based auction platforms and how to avoid them.<\/p>\n

1. You must sign their contract where they typically agree to provide insurable title.<\/h3>\n

Insurable title usually means that they will provide title insurance with noted exclusions. If there are clouds on the title, their title insurance company will provide insurance that excludes those issues. Therefore, that means it\u2019s insurable\u2014but not “marketable.”<\/p>\n

What does that mean? There may be improperly discharged mortgages, unrecorded death certificates, or any number of other issues. Some issues are a big deal; some are not. But the best time to clean up those issues is before you buy it, not afterwards.<\/p>\n

Why is that a big deal? You want to sell to an end buyer, and that end buyer\u2019s lender probably won\u2019t find those exclusions acceptable. You\u2019ll be stuck cleaning up the title when you have no leverage with the bank that sold it to you. The bank has no incentive after closing the sale to you, either. They have your money and are done with it.<\/p>\n

\"Enter<\/p>\n

Related: <\/strong><\/em>How to Find Real Estate Deals Using Hubzu (& Other Online Auction Sites)<\/a><\/em><\/p>\n

2. Frequently, they will even pay for the title work. What could possibly go wrong?<\/h3>\n

Really? You want to trust them to find all the problems with the foreclosure that they may have improperly executed in the first place? And if they do find them, the title insurance will exclude them. Of course they want to pay for that! Don\u2019t take the bait, er\u2026I mean the free title insurance. If you have the option, use your own title company.<\/p>\n

3. Once you win the bid, you must send in your deposit within a few days\u2014and you can lose that deposit.<\/h3>\n

If they have agreed to provide insurable title, and you are borrowing money to finance the deal, your lender won\u2019t close if the title is not \u201cmarketable\u201d but is simply \u201cinsurable.\u201d That is a legal definition that I\u2019m not qualified to discuss, but trust me, your attorney (and mine) understand it very well.<\/p>\n

Now what? You\u2019ve put your money down, and you can\u2019t get financing!<\/p>\n

\"euphoric<\/p>\n

Related: <\/strong><\/em>I Almost Bought Properties at Auction: Here\u2019s What Stopped Me<\/a><\/em><\/p>\n

How to Avoid Common Problems With Online Auctions<\/h2>\n

Normally, a title search is done by the closing attorney after you have secured financing and are moving toward close. I recommend getting the search done right away.<\/p>\n

Most importantly, once you win the bid, and before you send in your earnest money deposit, order a title search immediately. That way you\u2019ll know you won\u2019t have that problem before you send in your hard earned bucks. You\u2019ll also know what the issues are and if they are fixable in terms of rehabbing the property.<\/p>\n

You Won the Auction. What Now?<\/h2>\n

Find a title company that can run title within two days. I know it can be done, because my attorney does it for me regularly. It is likely that you will need to find one with an in-house title abstractor.<\/p>\n

Keep searching; ask around at your local real estate group. Don\u2019t try to get it for free, either. Pay them, and make sure they know you aren\u2019t trying to get something for nothing. It\u2019s totally worth the $250 to save you the thousands on a lost deposit.<\/p>\n

After that, you can move forward in the deal with confidence. But understand that your lender may not use your title company, and you may have to pay for it again. Regardless, it’s worth it.<\/p>\n

\"\"<\/p>\n

Have you purchased property on auction? Good results? Bad results? Heard any horror stories?\u00a0<\/em><\/p>\n

Comment below.\u00a0<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

When attempting to buy property on real estate auction websites, you can lose your deposit without closing on the property or even end up with a property you can’t sell. Here’s how to avoid a few of the common problems that come with participating in online auctions. <\/p>\n","protected":false},"author":5181,"featured_media":108947,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[4252],"tags":[],"class_list":["post-108792","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-deal-analysis"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/108792","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/5181"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=108792"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/108792\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/108947"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=108792"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=108792"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=108792"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}