Buying Real Estate or Homes in an Online Auction

Are Online Auction Sales Legally Binding?

Edited by Elizabeth Weintraub, Home Buying Expert.

There seems to be a fair amount of bidding taking place in the real estate auction sections of eBay and other similar online auction companies. Some sellers are taking bids for a downpayment, with the intention of owner-financing the property after the auction closes. For some auctions, your bid becomes the first payment in a lease-option agreement. Other sellers are simply trying to sell a property outright.

It's a little frightening to think that someone would buy property sight unseen, no matter how inexpensive it is.

  • Serious deed and title problems could exist (liens, foreclosure, other claims)
  • The property could be totally inaccessible
  • Structures could need massive repairs
  • It might not be possible to bring utilities onto raw land and you might not even have the right to dig a well

There are hundreds of things to consider, and if you're not familiar with the area the property is located in, you won't have a feeling for the common problems that can plague properties in that neighborhood. Further, you won't know which questions to ask. Home buying at an online auction is not always fast and easy.

The Safety Buffer

The good news is that real estate auctions on eBay, Yahoo! and other similar online services are not legally binding. Those companies are not true auction houses that are licensed or qualified to sell real estate. The service they offer is simply an interactive advertising tool, one that sellers can use to connect with potential buyers.

After bidding closes, buyers and sellers get together and attempt to work out a true real estate contract that adheres to the laws of the state where the real estate is located.

"Binding" and "NonBinding" Bids on eBay

eBay offers sellers two choices for real estate auctions, "Binding" and "NonBinding." Don't be confused by those terms, because neither results in a legally binding contract to buy the real estate.

So how do they differ? When you bid on a Binding real estate auction, you indicate a true intent to buy, so you can receive negative eBay feedback if you win but choose not to complete the transaction. You cannot receive negative feedback if you do not complete the purchase of real estate won in a NonBinding auction.

Advertising Option

Some of the properties on online auctions are placed there as ads only. No bidding takes place. That option is a fairly inexpensive way for sellers to get extra exposure for their real estate. Zillow offers some of this. You can checkout the "make me move" offers. Be aware that those prices can be a bit high. Or, as an investor, you make offers directly to sellers as well.

Real estate agents are concerned that Zillow is trying to duplicate their brokerage houses and worm its way into the real estate business. First and foremost, though, Zillow is a website. It is not a real estate brokerage. Keep that in mind. 

Are Online Auction Commission Free?

Some companies charge a commission fee as high as 5%. This is a fee the buyer pays on top of the final sales price. On the other hand, a good real estate agent is worth the commission. Buyer's agent services are typically free.

The Bottom Line

Follow the links to read each auction company's rules. Policy guidelines are sometimes buried deep in the website, so you must dig a little to find them. eBay has a Real Estate Rules page. For others, start by reading their "help" pages, or look for words like "policies" and "rules."

Have fun browsing. Who knows, you might even find your next house in an online auction.

At the time of writing, Elizabeth Weintraub, CalBRE #00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, CA.