I've spent the last 4 years using online auctions to market and sell real estate. During that time, I've encountered a lot of confusion from both buyers and sellers. Here are some answers to some frequently asked questions.
Q) Will an auction force me to sell too low?
A) No, not if you set it up correctly. There are 3 main types of online auctions. If you use a Reserve Auction, you can set a hidden reserve price on the system and the auction will not be considered successful unless the reserve is met. If you use a Minimum Bid Auction, you don't set a system reserve but you can state in your terms that the winning bid is subject to seller approval (This type is commonly used for short-sales and bank owned property). The third type is an Absolute Auction, and this is the only type that could force you to sell it too low. When yo sell "Absolute" you are telling buyers that the high bidder is the winner regardless of how high bidding gets.
Q) Are online bids legally binding?
A) Yes, if the terms indicate they are and the online auction system has a trail to show the bid was made by the person. If you're interested in more details about this, here is a link to an article published on this subject in the March 2008 Auctioneer magazine.http://126.96.36.199/ActiveMagazine/getBook.asp?Path=AUM/2008/03/03
Q) What if the high bidder backs out?
A) There is no difference than having a signed sales contract on a property. You decide how much of an effort you want to take to pursue the person legally. Many Online auction systems now provide tools such as credit card capture so a penalty can be charged to the high bidder that doesn't perform.
Q) Are there any liens on the property?
A) Many buyers seem to think that an online auction is subject to the same terms of a foreclosure auction done at the courthouse where there could be other liens on a property. That is not the case. The property sold through an online auction goes through the same closing process that any "traditional" sale would go through. The title passes free and clear of all previous liens.
Q) What's the secret to being successful with an online auction?
A) A quality auction listing and good advertising. The online listing needs to contain thorough information about the property, terms that are easy to understand, many good pictures and a virtual tour, if possible. You also need to have a good advertising plan. Auctions naturally attract attention but people need to know about it. Yard signs, open house "previews", fliers, local ads, Internet/e-mail marketing, post cards, etc. The more you let people know about it, the better the chance for success.
Hope this was helpful, I'll share some more next week.