How Do Online Property Auctions Work?

Online property auctions have become increasingly common in Australia due largely to the Covid-19 pandemic and its restrictions on physical gatherings. Here’s what you need to know.

What is an online property auction?

An ‘online property auction’ is a term that refers to any property auction conducted remotely via the Internet. Bids are placed digitally, and, much like a conventional on-site or physical auction, the highest bidder is declared the winner.

Online auctions generally carry the same legal requirements as in-person auctions. The buyer signs the contract electronically and pays the deposit on the spot, and there is no cooling-off period.

Before you register to bid at an online auction, try to derive as much information as possible from the selling agent so you understand the process well.

🤓 Nerdy Tip

Online auctions may sometimes be classified as private treaties or private sales, which are subject to significantly different rules. Make sure you are actually participating in an auction and take steps to understand the format before placing a bid.

In-person vs online property auctions

Online auctions function similarly to physical auctions, but some crucial distinctions exist.

Different dynamics. The dynamic is entirely different at an online auction. Unlike a typical, in-person property auction, there are no physical bidders or selling agents poking around and constantly badgering you to make another bid.
Transparent bidding. The bidding should also be transparent throughout the process. You’ll know exactly how much the highest current bid is and can adjust yours accordingly.
Change of pace. The pace of the bidding can also differ as you can’t read the room, so it will generally go faster — it is, after all, easy to just press a button to keep bidding.
Limited constraints. Notably, despite sometimes frenetic bidding, online property auctions do not have the same time constraints as physical auctions and may be conducted over a period of days, depending on the terms and conditions laid out beforehand. This gives you, the buyer, considerably more time to consider your bidding strategy and options.
Final bids. The end of the auction will also be slightly different. Unlike a physical auctioneer calling for final bids and initiating a countdown, online auctions work on a timer model. So, once the clock times out, the highest bidder is declared the winner as long as it reaches the reserve price.

Bidding at an online property auction

Various platforms hold online auctions, so formats and procedures can vary from one site to the next. The terms and conditions to register, for example, may be slightly different. Either way, most will require what they consider to be an appropriate level of identification and sometimes an opening bid at registration.

Once the bidding starts, the auction should follow a similar trajectory to a physical one.

Be warned that online auctions can move at a breakneck pace. Some platforms even allow bidders to raise their bids by fixed amounts (up to their limit). For instance, each time someone outbids you, you could come back with a minimum increment, such as $2500 more than the previous. The auctioneer typically determines the minimum bid amount, but this information should be easily accessible to bidders beforehand.

The technology involved in online auctions may be a bit daunting, especially if you’re new to the process. So, you should ideally have an expert with you, such as a buyer’s agent with experience at online auctions, throughout the process.

Preparing to bid

As a potential buyer, you should prepare to bid in an online auction in the same way you would for a physical auction. Here are a few key steps you’ll need to take.

Secure financing with your lender so you know how much you’re pre-approved to borrow when bidding.
Conduct a virtual property inspection if you can’t organise a physical one. However, seeing the property in person is always better if possible.
Research the property thoroughly, including the sales history and valuations for similar homes in the area.
Ask the selling agent for building and pest inspection reports or a strata report if the property is in an apartment block.

» MORE: Auction tips for first home buyers

Pros and cons of online property auctions

Online auctions have good and bad points, depending on your circumstances and perspective.

Pros

A larger pool of potential buyers: For sellers, a well-marketed online auction can attract buyers from near and far, given that they don’t need to go to a physical place to bid. This gives them a greater chance of securing a higher price.
More time to make a decision: Unlike physical auctions, online auctions may be conducted over a period of days, giving bidders far more time to consider their options and act accordingly.
Convenience and accessibility: Online auctions allow you to attend from anywhere as long as you have an internet connection. So you don’t have to be at a physical location for the auction.
No badgering from the selling agent: Physical auctions are usually accompanied by the selling agent continuously asking bidders to stretch their finances by just a few more thousand dollars to maximise the sale price. Thankfully, that does not happen during an online auction.
Transparency: Online auctions record every bid as it happens, making the process highly transparent for everyone involved. There is no conjecture about what is going on and where the bidding is at.

Cons

The pace of the auction: As already stated, bidding can be quite intense at online auctions, which may be intimidating, especially for a first home buyer. Having someone with you throughout the process may make it easier.
Technical issues: Technical issues can affect the bidding in online auctions, and your network connection may not hold for the entirety of the process.
Misleading: The terms and conditions are difficult to understand. Online auctions should come with a digital form of a Bidder’s guide, but there may also be many complex terms and conditions. You may want a solicitor to look it over before plan to bid.
Inability to make a proper inspection: Depending on the property and its location, you may only be able to do a virtual inspection. If that’s the case, you must get building inspections or strata reports before placing a bid.

The future of online property auctions

Online property auctions increased considerably during the pandemic, when on-site auctions were greatly curtailed. The real estate sector had already been at the forefront of digital adoption for well over a decade, so the move to online auctions was, in many ways, a natural technical progression. As already stated, online auctions have already captured a large percentage of the auction market.

Online auctions are likely to become increasingly interactive, driven by artificial intelligence, where sellers and buyers can converse seamlessly in real-time.