In a minimum bid scenario, the seller will only accept bids that are equal to or greater than a specific and publicized price. The benefit of this if you are the seller is that you have a say in how much you will or will not take for the sale; however, setting a minimum can be risky. It is meant to safeguard you from relinquishing your property to a below market value bid, but it can also deter bidders if you set your minimum too high. For a buyer, the advertised minimum is a benefit that allows a budget determination to be made before the bidding begins. Why waste your time in an auction where the minimum price already surpasses your budget?
Often the most confusing type of online property auction, the reserve auction, is very similar to how you would sell a home traditionally. A minimum bid is set, but it is not revealed, and the highest bid is essentially the highest offer. The offer is subject to acceptance or rejection depending on the set reserve. It is a sort of safe guard for the seller because he does not have to accept the high bid, but it can be difficult to draw prospective buyers because they do not want to invest time and research on a property if their offers are subject to confirmation.
The most well-known type of online property auction is the absolute auction. This is the typical situation where the highest offer, regardless of price or profit, is accepted. All participants know that the ultimate result is a sale, and for this reason, though riskier, this traditional approach generates the best market response.
It may also behoove you to understand the legalities of "binding" and "non-binding" in the online world. Binding does not mean that you cannot back out of a deal. It does mean that you can unofficially be blackballed as a buyer if you do not follow through with the deal. Your reputation can be negatively affected on sites that offer customer feedback as part of your profile. Obviously, others will be made aware that you did not conduct good business. Non-binding contracts mean that upon discovery of either the buyer or the seller, certain situations can legally void the sale without repercussion.
If you know and follow the rules of the online auction world, it can be a great outlet for investing. Of course, there are always risks associated with any business deal, but research, education, and experience increase success.
