You could save money through online auctions, but lots of other people have their eye on the same prize.

If you've never been to a real estate auction, you've missed a fast-paced and sometimes highly competitive event. But what about online auctions? Some services sell homes in a similar way as the familiar eBay does business. Difference is, you get a house instead of a vintage dress or great deal on a guitar.

What are the risks and rewards of an online real estate auction? There are plenty of both, but it's sometimes worth it if you know what to watch out for.

You Could Save a Lot of Money

Probably the biggest reason anyone thinks about buying a house at auction, whether in person or online, is to save money. That's a real benefit that can save you thousands of dollars, accord to Soble.






That said, there's also bidding wars to consider. Cornell University  explains that bidders don't always perform thoughtfully. When a bid secures an item to the bidder, the next higher bid that comes along feels like something is being taken away. That can encourage bidders to offer much more than the item, in this case a house, is really worth.


An inspector that you hire has only your best interest at heart.

Inspections are Even More Important

Unless you're bidding on a house that's in your local area, you probably won't see it before the auction ends. That's an enormous risk, but one that a certified home inspector can help with.

Home inspections are always important any home sale. In one where you need eyes and ears, he's indispensable. Even if the home is close to where you  live now, do yourself a favor and hire a home inspector.

There Might be Other Problems

When you think of defects, you probably imagine missing shingles or a wobbly staircase handrail. But defects that don't affect the home's structure can make finalizing sale paperwork a real problem. Problems aren't good when you're under strict time constraints, like most auctions are.

Real estate attorney, David Soble, says at LinkedIn that defects with the chain of title are likely in an auctioned home that could have been sold on the regular market. Problems with the chain of title mean that there's a missing link along the timeline of deed transfers, or that there could be another party with a claim on the property. These issues are often solvable, but they take time.

Not All Auctions are Distressed Property

A lot of homes that go to auction are distressed property, but that's changing. Many are foreclosures or houses that can't sell, or at least not very well, on the regular market. But some homes are in fine shape.

The trick with the nicer homes is understanding the minimum bid. Some have a starting bid that's equal to the balance remaining on the mortgage. Investopedia also cautions that you should find out whether it's a lender-confirmation or absolute auction. In the former, the lender can deny the sale if the winning bid isn't high enough. In the latter, the highest bid wins.

Contracts are Usually One-Sided

As you might imagine, there are lots of fine details with a real estate auction, and many of them favor the seller. For example, Soble says that the winning bidder might or might not have the right to cancel the sale after the auction is over. If the inspection is done after the auction and defects are found, you could be stuck.

In a better situation, you could cancel the contract. But that could have a catch, too. Your deposit might not be refundable under the contract terms, regardless of what the inspection reveals. If you hire a real estate attorney to review the contract before you bid, you'll know your options up front.

Online real estate auctions are an up-and-coming way to find the home of your dreams. But like anything that sounds a little too good to be true, there are very real risks tangled up in the rewards.

You can hire an agent to represent you in online auctions, and you should let an attorney review everything before you commit. That way, the home of your dreams is less likely to be a money pit and more likely to be a great decision.

One way to find the value of a home that you're interested in is through eppraisal's free property valuation service. Just enter the property address, and we'll show you details about the house, what its approximate value is, and how it compares to surrounding property.