A Seller’s Guide to Effective Online Auctions

Auction Glossary

Absolute Auction: An auction in which a property will be sold to the highest bidder, regardless of the winning bid amount. This approach is advantageous for motivated sellers, because they are guaranteed a successful auction. Absolute auctions are risky, however, because sellers may receive less for their property than they had hoped.

As Is/Where Is: In real estate, this phrase signifies that the seller offers no guarantees or warranties on the condition of the property, or even on the information in the auction itself. This is a caveat emptor auction, in which the buyer needs to conduct thorough due diligence to ensure he knows exactly what he is bidding on.

Auction Terms: The specified rules in an online auction that govern the processes surrounding it. They may include such terms as who can bid, what is required of bidders, how long the winner has to complete settlement, and what forms of payment the seller accepts.

Bid (aka Proxy Bid): A potential buyer’s maximum offer on an online auction. While individual websites may vary, most online auction sites use proxy bids. Proxy bids hide the bid amount confidentially in their system, using only as much of the maximum bid as is necessary to maintain the bidder's high bid position or to meet the reserve.

Bid Increment: The minimum necessary bid amount over the current bid. If an auction has bids, the next bid placed must be at least the current bid plus the bid increment.

Buyer’s Premium: A fee that covers the costs associated with an auction. It is added to the winning bid amount and is included in the total purchase price paid by the buyer to the seller. If an auction includes a buyer’s premium, it should be included in the auction terms.

Closing Costs: The fees associated with transferring ownership of the property at auction to the winning bidder. These can include services such as settlement attorneys, deed transfers, title insurance, postage for mailing documents, etc. Bidders should always research what the closing costs will be and what they include.

Closing Time (a.k.a Auction Closing Time or Auction Ending Time): The time at which an online auction officially stops accepting bids and declares a winning bidder. Bid4homes.com utilizes an overtime period, which extends the auction’s closing time in the event that a last-minute bid is placed.

Current Bid: The high bid at this moment. If the auction were to end without additional bids, this would be the winning bid (although it would only be successful if the reserve price was met or it was a “no reserve” auction).

Deposit: Money put down before a sale. Some online auctions require prospective bidders to place a deposit prior to bidding. If a bidder meets the reserve and wins the auction, his deposit goes toward the balance owed for the property. It is important to read the auction terms carefully for details on how to place a deposit, whether there are any additional costs associated with it, and under what circumstances the deposit may or may not be returned.

Due Diligence: The process of conducting research and gathering information on a property at auction, the seller of the property, and the terms of the auction.

Duration: The period of time during which an online auction is available to auction site users. Note that users cannot always place bids during the entire duration. Online auction site Bid4Homes, for example, utilizes a “preview period” in which users can view due diligence materials, but not yet place bids.

Feedback (a.k.a Seller Feedback): While this varies by site, many online auction websites have some type of feedback system that buyers use to evaluate their experience with a particular seller. This can help potential buyers form an impression of a seller’s professionalism and trustworthiness before they place a bid.

Minimum Bid: The floor at which bidding begins. Online auctions cannot accept a bid lower than the minimum bid amount.

Non-Performing Bidder (a.k.a NPB): A winning bidder who does not meet his obligations to follow an auction’s terms and purchase a property. Note that on some online auction sites (such as Bid4homes.com), a bid may be legally binding. If the winning bidder placed a deposit and becomes an NPB, he likely forfeits his deposit.

Online Auction: A webpage on the internet that lets potential buyers review information and place bids. Online auctions have gained widespread popularity over the last decade for their convenience, cost-effectiveness, and breakdown of geographical constraints.

Preview Period: A window of time prior to bidding that allows for buyers to conduct due diligence.

Reserve (a.k.a Reserve Price): The minimum dollar amount a seller will accept for an auction. This amount is not disclosed publicly, but bidders can usually see on an online auction when the reserve price has been met. Auctions with no reserve price are commonly labeled as “No Reserve” on the auction listing (see absolute auction).

Sealed Bid Auction: An auction that allows bids to be placed confidentially for review by the seller. This lacks the competitive nature of an auction, in that bidders cannot see what other bidders have offered.

Shill Bidding: The fraudulent act of using a co-conspirator (who has no intention of purchasing the property) to place bids, in order to artificially drive up an auction’s price.

Sniping (a.k.a Bid Sniping): The act of placing a bid in the final moments of an auction in an effort to become the high bidder. Given the last minute execution, sniping often prevents other bidders from placing retaliatory bids. Bid4Homes combats sniping through the use of an overtime period, which extends the auction’s closing time slightly if a last-minute bid is placed. This more closely resembles the activity of a live auction.

Stalking Horse Auction: An auction in which a seller solicits (or has already received) an offer to purchase the property. This offer is used as a minimum bid that prospective buyers must beat; otherwise, the property may go to the original offering party (the stalking horse).

Terms of Service: An online auction website’s rules that govern the site as a whole. These terms include any site-wide policies, such as whether bids are binding contracts and what registered users need to do to validate their accounts.

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Auction Glossary