Auction.com is trying to break into the traditional home-selling business.
I believe that the open-bidding format is the most transparent home-selling process and will someday have a place at the table. But auction.com comes from the old-fashioned auctioneering business, and insists on perpetrating two shady practices – an excerpt fromBloomberg:
Bliss Morris, CEO of First Financial Network, an Oklahoma City-based loan broker, said Auction.com misleads bidders by failing to disclose the reserve prices required to close deals and secretly bidding on behalf of sellers to drive up prices.
“You don’t know who you’re bidding against,” Morris said in a telephone interview. “If you have a reputable auction house, they’re not bidding against you.”
Those practices are common in the industry, said Frieden, a native of Anaheim, California, who started trading property 30 years ago and moved to Australia in 1989 to study real estate auctions.
“There’s no mystery about this, and nothing unusual either,” Frieden said of the process. “Well over 90 percent of all reserve auctions are done without publishing the reserve price. And the auctioneer has the right to bid on behalf of the seller to protect the reserve price.”
While logically there are many reasons to sell a house via the auction process, the biggest hurdle is the seller’s paranoia about giving their house away. Auction.com has been trying to develop a retail presence, but they are a long ways from gaining any traction.
Is there another solution that would offer similar benefits?
Yes, but first – what’s the problem with the current system?
Most realtors will sign up a seller to a 3-month, or 6-month listing period.
We charge a lot of money, so sellers expect a full effort. They want their realtor to spend lavishly on fancy ad campaigns and, well, do whatever they do to sell houses for top dollar.
Sellers make plans to wake up in a month or two and have a nice young couple with 2.2 kids make an offer very close to list price.
Because price is so important to making a good first impression on the buyers, it would make sense to make it attractive….and realistic. This price sounds like a mistake – or a joke.
P.S. Former owner paid $898,500 in 2005 and financed 100%.
The bidding will start with the minimum bid as indicated in the brochure. The Minimum bid may be less than 90% of the appraised value. This is determined by reviewing the current appraisal and selecting the (NOPA) legal process.
The procedure to confirm a sale in court will ALWAYS be an option and at the discretion of the Public Administrator at anytime.
A 10% deposit will be required with the successful bid. The 10% deposit required at the time of the auction must be in the form of cash, cashier’s check, or certified check payable to the “Public Administrator”. Please be prepared to bring 10% of the appraised price listed in the brochure. Should the property be sold for more than the appraisal price, then the difference will need to be made up in the form of a personal check at the time of the successful bid. If a petition to the court is filed for a hearing to confirm sale (Court Confirmation), an overbid procedure will be followed as part of this legal process. Higher bids may be accepted by the court if they are made in court and they are in the amount of at least 10% more on the first $10,000.00 and 5% more on the amount of the bid in excess of $10,000.00 of the original bid submitted for confirmation. Our acceptance of an offer is contingent on the estate’s being able to furnish the buyer a Policy of Title Insurance showing the property to be free of any encumbrances of record, subject to restrictions and easements of record. No termite clearance is given.
Please be advised that you are basing your purchase of an offered property solely on your findings and research, that you have satisfied yourself as to the zoning, usage’s, physical condition inside and out, size and other information that might affect your decision to purchase this property. You understand that you are buying this property in “AS IS” condition with no warranties, usage’s or conditions, (physical or otherwise), written, implied or expressed by the San Diego County Public Administrator’s Office and its agents or employees.
All properties have access through the use of Multiple Listing Service (MLS) lock boxes. Please contact a broker of your choice to view each property.
A real estate broker who registers a client with the Public Administrator and who attends and remains with his client during the auction, will generally receive a commission of 2.5% of the purchase price, awarded by the court. In the event this client becomes the successful bidder, the commission will be paid at the close of escrow. A real estate licensee who buys as a principal will not be entitled to share in the commission if he or she is buying as a principal or intends to share the commission with the principal.
The San Diego County Probate Referees appraise all properties at this auction. Referees are assigned to each estate by the Superior Court of California, and are not affiliated with the Public Administrators office.
All descriptions and information are derived from reliable sources, but no guarantee is expressed or implied. Announcements made on the day of sale will take precedence.
If desired, Zillow could devise a new PublicMLS system – they have the format, reputation, and eyeballs to get off to a flying start.
Redfin could too, but as a brokerage they are going head-to-head with traditional realtors so it’s more likely afight would erupt, where Zillow is a third-party and could be positioned as an ally.
Auction.com is knocking on the door too – have you seen some of the heavy advertising they are doing these days? Could they take over?
They seem to have the desire, because they are selling everything now – trustee sales, bank-owned properties, commercial properties, land, mortgage notes, and auctioning regular home sales too.
The package sounds good to sellers:
You set the reserve price so you don’t “give it away”.
You have a set timeline for selling/moving.
Buyer pays the 5% commission.
But will sellers get top dollar? Convincing them won’t be easy.
If auction.com can convince the agents first, and partner together to help blaze the trail it would be smart. Here is their first attempt:
It sold for $1,102,500 or 110% of the reserve price and closed 9/14/12.
BUT WAS THAT TOP DOLLAR?
Sellers would need conclusive proof to be convinced – it’s not enough for sellers to just get the reserve price, they want top dollar!
Let’s do what a potential seller would do, and try to estimate the value of their auction house.
But first let’s note that the sellers had been trying to sell since early 2011 – they had already exhausted the market, starting with their initial $1,649,000 in March 2011, and wound up being listed for $1,299,000 for the nine months preceeding the auction. Based on that alone, it probably wasn’t worth $1,200,000.
Using comparable sales from that era, it looks like it may have “comped” for $1,300,000, or so, and sellers who generate their own comparison will think it that the auction gave it away:
However, those comps were inconclusive at best – the two in Monarch Bay are paying $2,400/mo HOA for that privlege, and trying to estimate the proper view premiums is just guessing. But if you are a casual seller using the only tools available, you/re not going too look too hard – especially when you are just looking for a reason to say no.
Here’s a review by a Redfin agent calling the floor plan “unusual”:
Large lot with pool, sand/beach area, updated bathrooms, wood/tile/carpet flooring, unusual floor plan.
The sales price might have been as high as any buyer would have paid, but without easy and conclusive proof, sellers will be wary of auctions – because the last thing they are going to do is “give it away”.
The bank rejected the $825,000 high-bid from in the first auction, so they put it back on again with the same teaser opening bid of $450,000.
The ultra-low opening bids are a deterrent from being able to get to top dollar, because of the gap. As a result, the buyers will focus solely on going high enough to hit the reserve price, and even going that high will seem like over-paying to them when the opening bid is so low. They already resent having to tack on the 5% vig, so they will be aiming low.
The lack of conclusive proof plus the ultra-low opening bids will make regular sellers be skeptical that buyers will ever hit their top-dollar number.
It has a reserve price, the buyer pays the 5% premium on top of the sales price, the on-line bidding doesn’t start until May 30th, and the opening bid is $450,000.
We listed this 1,541 sf house on November 2nd for $399,000, based on these model-match sales:
$360,000 – July, 2012
$350,000 – August, 2012
$380,000 – September, 2012
$390,000 – September, 2012
$399,000 – October, 2012 (short sale in progress)
We had five bidders, and ran the sales price up to $411,500 using this open-bidding process.
For those new to bubbleinfo, here is the full video:
The 2,007sf house right next door closed for $350,000 a month ago, on a fraudulent short sale. The buyers of that home strategically defaulted on their old home three years ago, and now got back in the game, thanks to FHA. But I got our appraisal to come in at $411,500!
Tj and the bear asked for more details on the open bidding experience, seen here:
1. Buyers and Agents Were Willing to Participate.
There weren’t any objections – people were willing to do it. I only put a note in the MLS remarks that morning, and told people who attended that we would be selecting the buyer at 3pm. Even though the listing had only been in the MLS for 24 hours, I knew we had multiple contenders ready to buy, because they surface immediately. As listing agent, I want to encourage that urgency and take advantage of it – so I started telling people right away that we were going to select a buyer at the end of the open house, and people appreciated the ‘instant winner’.
2. Does It Get Better, Later?
I don’t think it does. The evidence in this case was an offer sent over the next day for $375,000. It’s why the practice of inputting listings but not showing them until days or weeks later is so detrimental – the hot buyers cool off quickly, and it is too easy for them to move on to the next new listing.
3. The Agents.
Richard said it before we started – this will really test the agents’ ability to properly advise their clients on the fly. All the buyers were discussing with their agents thoroughout, and about half the time it was the agent who made the bid on behalf of the buyer. Agents usually aren’t willing to push their buyers, whether it’s out in the open or not, and I think they handled this well.
4. Going Direct to the Listing Agent.
Nobody asked me to write their offer in order to get a presumed edge. With open bidding, there is no edge available, other than the quality of the agent’s advice.
5. Why it Didn’t Go Higher.
The buyers and agents may have been cautious, and/or well-informed. Two of the non-winners said that they “knew the comps”, and I think it was another example of how determined buyers are to staying within a reasonable range. There were two model-match sales recently; the one on this street was $380,000 and closed September 21st, and the other was the retail end of a flipper that closed for $390,000 on September 14th. The model-match short sale a few doors down listed for $399,000 was inexplicably put into withdrawn status, instead of ‘contingent’ so it wasn’t easy to find. They moved it to contingent yesterday.
So while people were motivated enough to show up the first day and participate in an event they’d never seen before, they weren’t willing to go crazy on price. Back in the bubble era, the threat of being priced out forever seemed real – we had never seen prices dump before, and “getting in” was more important than getting a good price.
These days buyers are very savvy about the values, and are willing to let a property go, rather than pay too much. There are probably a lot of people waiting on the sidelines that will buy the dips, and any appreication will be in smaller increments and undermined by the fraudulent short sales.
I was happy to get the $411,500, which is 5% more than the highest recent sale. I think it shows that the open bidding/transparency package is a viable way to achieve top dollar.
1. The more comfortable the listing agent can make it for buyers, the more likely they will pay more.
2. The fairer, the better.
3. Get top dollar, and figure out the rest later.
P.S. The 30% bigger house next door sold for $350,000 a month ago, on a fraudulent short sale. The buyers of that home strategically defaulted on their old home three years ago, and now got back in the game, thanks to FHA.
