BUYERS: Decoding Bidding at Online Auctions

By Elizabeth Weintraub 

On some auction websites, you can watch the bidding take place in real time.

The action can move fast, so if you want to participate competitively, you'll need a good understanding of the value of your target home in the current market, and how it's reflected in the bidding process.

The Opening Bid

The bid price stated online is meant to attract your attention. It is not necessarily the final sales price and might have little relationship to actual market value. The estimated bidding price might be 50% to 75% of the amount the seller actually hopes to receive. It's a starting point for the auction and usually far lower than what the seller will accept. The online auction will typically begin at the bid price and move up.

Market Value

Many auction websites will post the estimated market value as well. To determine true value, you will need to examine comparable sales. These are the final sales prices of similar homes that have recently sold. These are not the sales prices of homes currently for sale—since sellers can ask any price they want, homes don't necessarily sell at the asking price. Only the final sales price of a closed sale within the past few months is considered a comparable sale.

Bid Requirements

There might be minimum requirements regarding the amount of a subsequent bid, known as incremental bids.

If the increment is set at $10,000, and the first bid is $100,000, this means the second and subsequent bids must be increased by at least $10,000. So, a second offer of $100,001 will not be accepted. Under this scenario, the second bid must be at least $110,000, with a third bid set at $120,000, and so forth. Note: Bid increments can change during an auction.

Reserve Price

Most sellers have a secret reserve price. If the reserve price is not reached, the seller is not required to sell.

For example, a seller might submit a home listing worth $400,000 at an enticing opening bid of $200,000. Buyer A might bid $200,000. Buyer B might bid $225,000. Buyer A might then raise their first bid to $235,000. If the seller's undisclosed reserve price is $375,000, this home will not sell to any of those bidders, and the auction won't be finalized until the reserve price is reached. Note: Just after an auction ends with the reserve not met, it is possible a buyer could accept the seller’s reserve or negotiations may occur and the buyer and seller agree on a price.

Going, Going, Sold

Once an offer is accepted, a contract between buyer and seller is formed. If you decide later to cancel, you risk losing the earnest money deposit. Buyers who lose deposits tend to do so because of a misunderstanding of the rules, or for failing to hold up their end of the deal.

Most auction websites sell their homes as-is, meaning you agree to accept the deal regardless of the home's condition. Unless there's an extreme or unconscionable violation on the part of the seller, you will not be able to renegotiate on price, regardless of any surprise defects you might discover. If you cast the winning bid, you'll follow up with formal documentation, which can typically be initiated online as well.

If you are interested in selling real estate, please allow Target Auction Company the opportunity to detail the benefits of our auction platform and provide you with a free consultation. We can offer the information and advice needed to make a sound decision regarding the sale of your property. We can be reached by email, at 1-800-476-3939 or visit www.TargetAuction.com.

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