Buying A Home At An Internet Auction? – Read The Fine Print

Can you save money buying a foreclosure home at an internet auction site?

Van Alstyne home being auctionedIs buying a Van Alstyne home or other area home for sale at an internet foreclosure auction a good deal?  Doesn’t it appear that all the elements are there to save money? The seller won’t have that pesky Realtors commission, no room full of tense people, no spotters yelling or an auctioneer quickly spouting unrecognizable phases and imploring you to bid. It’s all done sitting at home while eating crackers.

Read the fine print, do your own investigation and keep your emotions in check because it might be a bumpy ride. Let’s take a look at a recent internet foreclosure auction.  They had a Van Alstyne foreclosure listing shown on the MLS at $94,900.  On paper it looked like a great deal until you consider it’s horrible condition and unattractive location.

This particular home was loaded with red flags from the severely buckled driveway and cracked walls to the ceiling leak stains in every nearly room.  On foreclosures there isn’t a seller’s disclosure but it didn’t take long to see that this home needed a considerable amount of work.  It shouldn’t be a surprise that this is normal for foreclosed homes.  There is always a reason a home is priced well below market.  There are gems but they are rare & if you find one, expect plenty of competition.  You have to decide if buying a home in this condition and doing the required repairs is worth your time and money. You may buy it cheaply but spend a fortune fixing it.

The listing price didn’t really matter because the only way you could submit an offer was through the internet auction when live bidding was available.  The minimum bid was listed at 65K.  Sounds attractive doesn’t it?  It went to apx. 85K before the “reserve” was met so the minimum bid was just a tease to attract bidders. The fine print even says the seller still has the option of not accepting the offer, even if your offer is the highest and meets the reserve. Be aware that a bid coming in within the last 15 minutes will result in an extended bidding period. That was the case on this sale so the bidding continued and extended until it was finally over at 102K.

Buyers new to the auction process often will miss the fine print.  In this case, it looks like a great deal because there is only a $299 ahem….technology fee.  Oh wait, there is a 4.5% buyers premium so that is another $4,590.  This great deal is now $106,889.  The next little item is the earnest money required. On most normal MLS transactions in this price range, the customary earnest money would be $1,000 but this site required a whopping 5% ($5,100) earnest money deposit!  Yes, that money will be credited to the purchase price but it is way above what would be required on a normal home sale.

This buyer is paying $4,590 in buyers premium, $299 in technology fee and will put up $5,100 in earnest money or almost 10 grand on a home needing extensive repairs. Inspections are allowed but since utilities are off you get the pleasure of having them turned on and paying for them. Investors or buyers with home repair knowledge, access to low-cost contractors and material may be able to make out nicely on a home like this but it’s not for the faint of heart if you are inexperienced. Hire a good inspector and make sure you give proper notice if you need to terminate for inspections or financing reasons.  You do want your 5% earnest money back don’t you?

Unless you know how the auction process works and have the proper resources, the good deal you thought you were getting may turn out sour.  If this home was listed for sale as a normal transaction it probably would have turned out differently. The purchase most likely would have been at the listed price or below, no buyers premium or technology fee and the earnest money much lower. Yes, the listed price may have been higher but due to the condition and location of this home, I doubt it.

Before buying foreclosure property or any property at auction, make sure you understand that you may be paying the commission (buyers premium), fees (technology) and higher charges (earnest money) than normal. Make sure you understand the whooping 32 page contract or you will have little recourse if it doesn’t turn out like you planned. Often times the lack of communication from these sites can an issue.  Before using any internet auction site, search for their reviews.  You may find that the only way to communicate is by chat line in a foreign country or email.

A good Realtor can explain how the auction process works as well as the advantages of using a buyer’s agent for either an auction or standard real estate purchase.  Realtors are essentially project managers and will be there to guide you all the way to the closing table. Additionally, if you are not aware of repair costs or contractors, a Realtor who understands remodeling and ARV (After Repaired Value) can be an invaluable resource.

Contact Keith Laursen at 469.233.1234 for more information or when you are ready to buy or sell a home in North Texas.

About Keith Laursen

I am a Fathom Realty Realtor specializing in town and country properties in the cities of Van Alstyne, Anna, Melissa, Howe, Gunter, Tom Bean, Whitewright, McKinney and Plano, TX.

My trusty horse and I will help you "spot" the best in real estate. Remember, it can't sell if it's not spotted!
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  1. just wanted to say thank you for the advice. I am currently involved with some Hubzu properties and will try to check back and share my experience.

    • Thank you for letting me know the article was helpful and please let me know your experience, good or bad.

    • how did the HUBZU buying process go? i am currently bidding on a house on the site and its my first time, so i am a little weary.

      • The auction I followed was as I described – in my opinion, the buyer paid too much for the property, way to much in fees and when you are buying by auction you don’t have leverage and no professional advise. It all sounds so easy to cut the Realtor out, you source of local information and expertise. Well, you probably won’t save money, you will be buying a foreclosed property normally in terrible condition so you should have experience rehabbing, inspecting, investment analysis, and so on. You may feel all warm and fuzzy because you won the bid but the reality of buyers premiums, dealing with a company miles away and having no one on your side may be a surprise. Good luck, I hope it turns out different for you.

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