"Auctions could be a very rewarding experience for someone wishing to purchase real estate at below market value, but there are pitfalls if bidders don't do their homework prior to the auction," said Realtor Dale Klippel of Prudential California Realty. "Most big metropolitan areas, such as the Bay Area, Los Angeles, Sacramento and others throughout the entire United States, will normally never conduct a true auction within their immediate area. Any properties they have are usually farmed out to local Realtors for marketing through the Multiple Listing Service system."

Most of the auctions being held today are in smaller communities throughout the United States, such as the property in Northern California that was auctioned on eBay. According to Klippel, many auctions consist of properties where the local county has taken over ownership.

"Counties don't want to be landlords or Realtors, so they usually will hold a monthly auction on the courthouse steps in an attempt to rid themselves of these properties. They will usually establish a very low initial opening bid. These properties must be advertised in a local newspaper for at least three weeks leading into the auction," Klippel said.

"One has to remember that no county makes money with properties sitting in their inventory. They want to see all these properties under new ownership and have them on their tax bill each and every year. There are some counties within Texas that have a steady ongoing auction each day of the week, except Sunday, just to keep pace with all of the foreclosed properties they are receiving on a daily basis," Klippel said.

Real estate auctions have been viewed with negative connotations in the past, but today the majority of auctions don't result from foreclosure or distress situations but rather from the result of a seller choosing a cost-effective, accelerated method to sell a property. A real estate auction can be an innovative and effective method of selling real estate that involves the public sale of any property through open, competitive bidding. It can be a win-win situation where sellers obtain immediate cash and buyers purchase properties at fair market value.

All types of property can be sold at auctions, which may allow sellers to eliminate long-term carrying costs and pass savings directly to buyers in the form of a reduced price. Traditional auction firms look to real estate sales associates and brokers for property referrals and to register, assist and accompany potential buyers to the auction sale. Listing brokers often assist auction companies by conducting open houses, providing inspection reports and photographs and placing signage. Agents or brokers who assist auction companies earn a commission when the sale closes, depending on the responsibilities performed.

The National Association of Realtors monitors the auction industry, gathers information on techniques that could prove useful to its members and actively supports the enactment of state laws requiring those who auction real estate to either hold a real estate license or conduct sales in conjunction with a real estate license.

Klippel has studied the auction process for many years and keeps tabs on counties that hold monthly auctions. His advice to anyone wishing to attend an auction is, "Do your homework."

"You should make it a practice to view, in person, each and every property you would like to bid on. Take pictures for reference purposes. On auction day, paste them to the top of a full page breakdown on everything you know or have found out about while inspecting the property," said Klippel. "Check with a local Realtor about the most recent sales within this area. Ask what is the average sales price of like-kind properties. What was the lowest price paid? Find out the addresses of these places, too, so that you can do a drive-by and see how they compare with the one on auction."

One of the tips Klippel has picked up during his investigation of auctions is that the order in which the home is listed in the newspaper is usually the order in which the properties will be auctioned off on the auction day. This helps bidders with timing on auction day. Properties not sold at the end of the day are normally carried over to the next month's auction, but Klippel said some counties throughout the United States continue the auction the next morning, and the next, until all properties are sold.

Online auctions are another way to get into the bidding process. There are many websites listed on the Internet that sell properties though online auctions. Online auctions work very much like traditional auctions. They rely on listings and referrals from real estate companies and real estate brokers to accept and verify bidder deposits, write and close the contracts, conduct open houses and assist with the upfront due diligence. Brokers usually earn a commission for the services they perform.

The pitfalls of online auctions are that bidders often do not know for sure what they are getting, said Klippel. "A live, physical inspection is worth its weight in gold. You get to inspect the house up close but also have a chance to inspect the neighborhood at the same time. Plus it will give you the ability to sit down and discuss things with a local Realtor, gaining much-needed insight into that possible purchase," Klippel said.

Klippel recommends giving that local Realtor the listing when the buyer ultimately turns around and sells it. "You'll get better results out of the Realtor if you do this and keep your word by giving the listing to this agent. An online auction doesn't allow you to do any of this," Klippel said.

Successful auctions, whether they are online or not, require well-informed buyers, realistic sellers, strong publicity, an adequate viewing period and a full explanation of the sale terms.