Is it possible to find a truly great deal by buying property on the Web? Some cautionary advice and suggestions.
When the World Wide Web first hit our consciousness, many of us were initially suspicious of online financial transactions. Gradually we learned the merits of buying over the Internet — everything from bras to cars. Today you can purchase a coffin online and have it shipped when you need it.
You can also purchase a house, all through the click of a button. But how safe is it to do a major financial transaction like a property sale through cyberspace? Where are the red flags and how do we ensure we’re not being taken for a ride?
“You have to be really careful,” warns Harvey Sklaroff, a real estate broker in Narberth. “The horror stories from buying or renting online are associated with not knowing who you’re dealing with, if a property is really for sale or if it’s been posted there by one of those” offshore companies that request donations online.
“There’s nothing like dealing with a live, local individual who can represent you, do the research and make sure you’re getting a legitimate transaction with a legitimate title company.”
Sklaroff recalls an instance two years ago when folks found a great deal for a condo online — $1,000 a month for a two-bedroom that usually rented for $1,800. They were told to send a money order to England and after that they’d get the key, he says.
“I recognized the pictures” of the condo “because I’d taken them myself. I advised them not to send the money order because the actual owner of the condo knew nothing about it. Someone had taken the pictures off the website, listed the condo as a rental and started taking calls and emails!”
Andrew Maguire, a shareholder in the real estate group at the Radnor-based law firm of McCausland Keen & Buckman, echoes Sklaroff’s warnings. “Typically, a written agreement of sale between a buyer and seller will include a clause which states that the terms of the agreement will trump all property information previously provided to the buyer,” he says.
“For example, if a property is listed on Craigslist as a 10-acre lot, but the agreement of sale [accurately] references that same property as a five-acre lot, the buyer may have little legal basis for challenging the seller’s deceptive marketing of the property.”
Online, the risk to the buyer can be greater than in a traditional transaction, he adds.
Access to the property might be limited, which means defects might go unnoticed. “This is particularly problematic if the buyer will need financing in order to make the online purchase — lenders generally require detailed property information while performing their due diligence before making a loan.”
Having sold some 50,000 properties online in 2014 alone, Rick Sharga, executive vice president at the Irvine, Calif.-based Auction.com, says online real estate purchases can and do work out just fine.
Right now his company specializes in distressed residential real estate, with many of the homes in foreclosure. He always recommends that buyers inspect properties before their online purchase, but not everyone does. “Some investors choose not to,” he says. “Others pay someone who lives locally to take a look on their behalf.”
Contrary to popular belief, online buyers don’t necessarily get a better “deal” by buying online. “When we compare apples to apples in terms of sales, we’ve found the auction process tends to drive a higher price because you have more people bidding against each other,” he explains.
Depending on the property and its location, there are at times up to 20 bidders. For the online sellers, right now confined to banks and other financial institutions, the benefit of an online real estate auction is the reduced number of days on the market. Instead of waiting for a buyer to materialize, the auction determines when the sale will take place.
By later this year, Sharga says, Auction.com will be doing online auctions on behalf of individual sellers, too.
For buyers, one advantage of an online real estate auction is transparency. At any time a prospective buyer can see everything available on the Auction.com website — which is typically up to 20,000 listings, 4,000 of them sold each month. “If you really want a property, someone won’t be able to outbid you in a closed process,” Sharga says. “You can see in real time the bids coming in, and so you have that opportunity for a final bid.”
Auction.com sold 1 percent of all homes in the United States last year, he says, and this is just the tip of the iceberg. “This is a more efficient, more timely process that generates the best market value for a particular property. But if you’re going to buy and sell online, it’s important to work with companies you’ve heard of,” he cautions.
“It’s not necessarily the kind of thing you want to do on Craigslist. You want to be working with a company you can research and trust that it’s a legitimate operation.”
It’s not Craigslist per se that’s problematic, but the principle behind it: that of dealing with an individual through a classified-type arrangement. “You have no way of knowing who you’re dealing with in these circumstances,” Sharga says. “And on an investment as large as a property, you want to make sure you’re not dealing with someone who’s looking to rip you off.
“So I encourage caution.”
Lauren Kramer is a native of South Africa now based in Western Canada. This article originally appeared in the special section of "Real Estate."
