Have you ever browsed the listings of residential properties on eBay real estate? I have and recommend you do, if for nothing more than for curiosity factor.
What strikes me is the inordinate number of cheap homes listed on this auction site. My first reaction when I see a home for ten thousand dollars is: ‘ what the hay, why not?’. Even if it is a lemon, 10k is not a lot of money to lose. That is, if you compare the lose of people who have bought half million dollar homes, that now have a market price of 250k since the 2008 real estate bust.
It is true, we are all looking for the edge, or want to try something radical that will give us the edge, when in comes to money and investing. It is very tempting to bid on a house listed on eBay when you see such unbelievable prices, this is why I wrote this post.
Now, I personally am not going to buy a house on eBay Real Estate, or at least I have not yet. However, If I owned an investment property I want to flip I might sell it there mind you. That because eBay is nothing more than a marketing tool. The purpose of this post is to answer the question are eBay homes a good value?
Expectations with eBay homes
Caveat emptor is common sense if you are searching homes on eBay. However, everyone knows that I should think. So the purpose is to look at this from another angle, that is, can you buy an eBay home and get a deal if caution is exercised? Are there any good values or is it just junkmen peddling scraps from the junk heaps of excess and unwanted home inventories?
Other real estate websites compared to ebay
The eternal optimist in my would like to say there are good values. However, I have been searching houses for months and comparing them to what is listed on the market on Zillow.com, Trulia.com, Realtor.com and Yahoo Real Estate. The reality is the raw quantity of inventory is greater on real estate websites than on eBay. Further, these website provide more detailed information regarding historic value, than on eBay. The best is Zillow.com for historic sale prices and Yahoo has the easiest to navigate. You can cross check the address you find on eBay with the historic values based on actual sales.
I am not an expert but these are my personal observations. Again this post is more an exercise in curiosity.
I would give the same advice about HUD homes. That is homes listed on the HUD website you will find on these other real estate websites as well, however, alongside other homes. Why limit yourself? That is what I say. I prefer to look at a website that does a better job in aggregating and comparing apples to apples.
- Therefore, if you are searching for a home to live in, instead of an investment I recommend real estate websites not eBay. This is because you will have more choice. It is just the sheer numbers.
- If you are in the market for a home to live in, I would say at about 70,000 dollars you can get a nice home in many places in the USA. However, you might find a few that need cleaning for under 50,000 dollars. For under 30,000 they need a new roof or something. Of course if you have 1/4 million to spend or take out a mortgage, you are in a different league. I am just talking about the low end homes, as these are the ones that have really dropped in price from the crisis.
- The States where the best values are obvious, like Florida to North Carolina. Michigan and states way up there are too cold and demographics are not favorable in the long-term.
However, one advantage over say a Zillow is you can browse European and international property with ease in the UK and Spain, for example if you go to – property.shop.ebay.co.uk – for example. It is interesting to compare with the US property market. And eBay is a trusted website as well as paypal the main payment system.
eBay homes as an investment to trade
The only type of home I would buy on eBay is a speculative investment. That means something I might buy for a ridiculously low price and hope the market will turn around or I fix it up a bit with local guys and sell it. But this is a little like a penny stock.
Further, most eye catching listings have a ‘hidden minimum bid’, in addition to a ‘buy now’ feature. So you can see a nice home going for 10,000 dollars with 1 day left on the auction, but that does not mean it has passed the sellers secrete minimum bid.
So why sell on eBay?
If I can use a metaphor. I own website ‘domain properties’. That is a number of websites that produce income. I have thought of selling these on the most popular website that creates a market place for these. But someone told me, try eBay as the market is not as efficient and sometimes you get better value as a seller as there is an impulse factor. Ebay is efficiently priced for selling consumer electronics, but not as efficient for odd items that people are not buying and selling there, this includes homes.
What about auctions not just listings?
Online auctions are where the real value can be. Because let’s be honest, real estate is not liquid and requires a lot of capital so there are fewer players and the market has more inefficiencies than the stock market. This creates a barrier to entry. When there is barrier to entry markets are not as competitive.
That is the bottom-line, eBay has auctions and some houses that do go for less than you would expect because most people are not so adventurous to bid on an online home. You can make money this way. It gives the average guy a change to participate in an auction. I have been following these homes and have seen it. Sometimes the seller in my opinion wins and sometimes the buyer. But the question is what will you do with this house after you win?
I have also noticed that people on eBay real estate are more into buying several homes, having a portfolio and then trying to flip them. I observed this in a few homes I have tracked homes for a while passively. I have been tempted to give it a try, that is flip a unit or two because they are so cheap, even without physical inspection. I have not as I think it would be a little reckless. I always pick up the phone and talk to the sellers. Even just to probe them for information.
Further, I have observed what I think are people, buying homes on eBay fair and square and selling them again on eBay to the next guy at double the price. I checked this by cross referencing historic sale prices. There is not thing wrong with this, mind you, it is just what I have observed.
A note on homes that could be rented
The rental market is hot in some parts of the USA as there are many people displaced from their homes because of bank foreclosures or did a short sale. However, homes advertised as great rental properties on eBay I do not believe it. Like they say in Missouri ‘Show me”.
That is people say you can make up the investment price in a year. If that were true, it why would the owner be selling it. I think at least three times earnings is the rule for selling productive assets with less tangible value. So if you can collect 10,000 dollars a year in rent from a unit, the bare minimum the price should be is 30,000 dollars.
- But this is Real Estate and in the rental market it should average 15 times annual earnings. Yes, 15 times is the real ratio, and you might see some markets go to 20 and others to 10 but not 3 or 1 times earnings. This is because the property is an asset in itself, like gold, it is a real asset.
- New York the ratio is 39, in Vegas 6, Phoenix 7 and Miami 8. There are two types of markets. In Europe we call it the English and German market. The English model is generational wealth and home prices are at unrealistic prices and can afford to stay there, like NYC or Boston. In Nevada they are the German model, which means the average guy can buy a home. The values are in the lower end of the market as these are the homes that got hit the worst. Also the super high-end, but because of capital constraints for most people this is not realistic.
- Therefore, I am skeptical about sellers who make these claims.
What about the 10,000 dollar and under homes?
In 2010 the foreclosure rate in the USA was 2.23%. basically the worst year ever. Homes are on average at the 2002 level. That is a national average. Some markets are much worst and abandon homes are everywhere.
For example, in Flint, Michigan there are some abandon homes that could be repaired. But I personal would not want to live there unless I had to. I know at one time it was a great place to live but like Detroit, this are will not recover for a generation if ever. They are not going to open new car factories and people are not moving from South to North in the USA. You would be living in a future Ghost town like in the old west.
I have seen an investment company or two purchase homes built-in Michigan and then sell them piece by piece. To do this the barrier to entry is obviously capital.
I have also seen an Investment company buy homes one by one and then bundle them in a package deal. On such deal was 58 homes in Flint, Michigan for 98,000 dollars, total not each. The company made a large profit as they picked many of these abandon homes up for 100 dollars.
Look at five main things with caution
- Inspect – Get a building inspector or engieer to list all the things wrong with it or potential replacement time for items, old homes are always work. I also cruise around the town looking at Google street views. I would also call neighboors if I was serious about buying. I know this is a bother to people, but his is business and I want to know what people next door might say about the ara. Also www.city-data.com is a great source of information.
- Deed/Title search – will you be the only owner? This is very important.
- Taxes owned and other payments – most of the time this is not a big sum of money, but check it anyway.
- Environmental – Lead paint, radon, near power-lines, near and airport (higher rates medical problems). I would check these.
- Area – Is it in a shady or seedy area and who are your neighbors? I personally do not care about racial make up but I check out crime statistics and make sure there are no freaks in the area. Do people maintain their yard.
Where the values are?
Better than Michigan is Pennsylvania and better yet is Florida in terms of value for home on eBay. I guess the question I keep coming back to is, is this a homestead you will live in, flip or renovate and sell or rental property?
What determines a good location?
Look at these stats to compare Zillow’s historic prices if there are real values.
- Unemployment rate and growth rate
- Price to rent ratio
- Forclosure rate
Auction Vs. classified?
I think the auction has the better prices. Classified is just that, that is, an ad or marketing tool (Look I have seen desperate people selling homes on YouTube. It gives it a personal touch, but this is not the place either).
An auction on the other hand does not mean you own the property, rather it means you won the bid, but either party can pull out. Unlike other eBay Auctions it is not a binding contraction the same way. It is a strong commitment. But because of the rating system there is a strong incentive to be honest. I always check the seller to see what else he is selling.
Conclusion on eBay homes
- This website is better for the seller, as eBay is a marketing tool
- Sometimes auctions do have values, but you need to put it in the perspective of homes in the area and dollar per square feet etc.
- If you have extra capital that you are not worried about losing, fliping homes can work. Track them yourself historical sales yourself. I prefer to trade in liquid assets like stocks, than real assets like home.
Let me know about the crazy idea of buying a home on the worlds largest auction website.