Real estate auctions exist in many forms and are becoming increasing popular over the internet. Ebay alone boasts that 55,000 property have already been sold through eBay Real Estate.  [1]  There are significant benefits to using the internet to purchase property, since one can shop for real estate around the globe, pick a suitable property, and bid online from the comfort of one's home.  [2]  Traditional real estate auctions still exist, most commonly as government auction of seized property [3] or as bank auctions of foreclosed property. With the current estimate that one in three properties will be sold by auction by the year 2010, [4] one might wonder which, if any, of these auctions legally bind the bidder to purchase the property.

Traditional real estate auctions for government property or bank foreclosures occur on the steps of the home at a specified time with the potential buyers present at the property to bid. [5]  Potential buyers usually have the opportunity to inspect the property before bidding and are present at the property during auction so no unforeseen glitches in the process can occur.  These auctions are thought of as legally binding because purchasing property through an auction which one has had the opportunity to inspect is not significantly different than shopping around with a real estate agent and deciding which home to purchase.  In addition to being legally binding, most auction companies have a process for pre-screening all potential bidders to make sure they are creditworthy and financially pre-qualified, including access to cash in an amount at least ten percent of the expect sales price which can be paid at the close of the auction or soon thereafter as a downpayment. [6]  Traditional auctions are somewhat of a gamble since the buyer never knows how high the price might climb in the midst of competitive bidding, but a buyer might also incur substantial savings on the purchase of property.  Auctions have the benefit of not having commissions attached to them, [7] as do normal sales of property through real estate agents, so the savings from that alone can be significant, especially when combined with the auctioneer's desire to sell the property quickly.   

Internet auctions, however, pose significant risks since people generally are not physically visiting the property before bidding.  There can be various legal issues as well such as title or deed problems, any structures on the property could be in massive disrepair, or the property might be inaccessible altogether.  [8]  Because of the risks inherent in internet auctions that are not associated with traditional auctions, internet auctions are not legally binding.  [9]  Internet auctions can more appropriately be thought of as "an interactive advertising tool" in which a seller can identify a serious potential buyer and the two can later sit down and negotiate a contract for the purchase of the property.  [10]  In addition, eBay Real Estate allows sellers to decide whether they want to make bids binding or not binding.  However, this does not mean that sellers on eBay have the ability to decide whether or not they want to legally bind bidders.  Instead, making an auction binding simply creates an incentive for only serious buyers to bid because if an auction is deemed binding by the seller and a bidder does not follow through with the purchase, they can be penalized by . . . negative feedback!  [11]  Thus, in the internet auction world, nothing can be legally binding until the buyer and seller sign a contract for the purchase of the property. 

With the many conveniences of shopping online and the fact that bidding online does not legally bind the bidder, the internet is a great place to explore potential property investments, as opposed to the gambling and out-bidding atmosphere of the traditional, legally binding real estate auctions.

Sources

[1] eBay Real Estate, http://pages.ebay.com/realestate/landforsale.html.

[2] See Anthony Fitzgerald & Todd Wohl, Real Estate Auctions Popular with Both Sellers and Bargain Hunters, 25-7 AM. BANKR. L.J. 16, 16 (2006).

[3] See Government Sales and Auctions, http://www.firstgov.gov/shopping/shopping.shtml.

[4] See Fitzgerald & Wohl, supra note 2, at 16.

[5] See, e.g. Real Estate Auction Guide, http://www.realestateauctionguide.com/ (listing upcoming auction locations, dates, and times of auctions).

[6] See Fitzgerald & Wohl, supra note 2, at 50.

[7] Id.

[8] See Janet Wickell, Buying Homes and Other Real Estate in an Auction,http://homebuying.about.com/od/howtobuyahome/a/online_auctions.htm.

[9]  Id.

[10] Id.

[11] Id.