One of the newest ways to sell Real Estate these days is through an auction web site like Auction.com, but buyers and sellers need to be aware of what these sites really are and what they are not. The reality is that these sites are no more than a third party advertiser. They are not a licensed brokerage or even members of the local MLS. This makes it easy for them to make their own rules and ignore the state and MLS rules/laws. They have become popular with difficult to sell properties (bank owned, badly damaged and greedy sellers). These web sites pretend to hold an auction in which the winner thinks they have just bought a home. The reality is that the winning bid is presented to the seller (the bank, owner of a badly damaged property or a greedy seller) and the seller will decide if they will accept the offer. That’s right, I said offer, because that is what the winning bid really is. It is just an offer and the seller will determine if they will accept, reject or counter.  The auction usually last 7-9 days after a 21-day appearance on the auction web site and in the local MLS system. If a new bid comes into the auction it is automatically extended by 12-24 hours.

   For buyers it gets worse, while there is a listing agent, that agent is only there to make the listing legal. Remember, these web sites are not licensed brokerages so to make it legal, they pay some listing agent $1,500 to put the property into the MLS system. This agent will do nothing to help the home sell or close. All the offers and contracts are handled through the auction web site and this is where the biggest problem for buyers come in to play. First they make up their own contracts in which buyers must sign to buy the home. You’ve heard the term “The devil is in the details” and in these cases they are. Many of the contracts I have read leave the buyer little protection and usually state the home is being “sold as is where is”. The buyer is usually given only 24 hours to get the contract signed and returned to the auction site. This leaves the buyer little to no opportunity to have a lawyer look it over and advise them. The buyer’s earnest money is usually nonrefundable, usually it’s cash only and they ask the buyer to pay up to 5% more on top of the agreed purchase price as a fee. If they do allow financing, they write that a buyer may not back out because of low appraisal. This means the buyer has to come up with the difference in cash or surrender their earnest money to back out.

   It’s not much better for the sellers either. Most of the serious buyers with cash are looking for a deep discount when buying from these websites. So the winning bids are usually much lower than a seller was looking to get, even though the salesperson from the auction web site may have promised they would get the most money for their property. I have seen many times an auction end, only to have the seller disappointed and the home go back through the auction process again and again and again until the seller withdraws the property from the auction site all together. It gets worse for the seller. Most of the time the auction web site charged the seller a nonrefundable fee to put the property on their site in the first place. As for that earnest money that a buyer may have had to surrender to back out of a bad deal, the auction web site takes at least half, if not all. If that is not bad enough, if the property does sell, the seller still pays up to 6% as a fee of which the listing agent only gets $1,500 and the buyer’s agent gets 2% or less. Leaving the auction site with a large profit as high as 8%.

   For any of you who may have had experience with these auction sites, please comment about your experiences so that others can learn what to expect if they choose to follow this route.