The auction format is gaining ground – here’s the fourth high-ender this company has done in the Rancho Santa Fe area with no reserve:
Category Archive: ‘Auctions’
We are shambling our way towards using an auction format to sell houses, but then again I was the idiot who thought we’d have video tours of every listing by now!
From the WaPo:
They find, in research published in the journal Real Estate Economics, that only around 3 to 4 percent of homes on the market across the country were selling in bidding wars for years prior to the bubble. Then at the bubble’s peak, nearly 30 percent of homes in metropolitan D.C. were selling this way, the highest share of any metro Han and Strange studied. The same was true of about 22 percent of home sales in Baltimore and Norfolk, 23 percent in Las Vegas and 26 percent in Los Angeles.
Since the housing collapse, these crazy numbers have declined, but not back to their earlier levels. As prices have fallen and the number of home sales has, too, bidding wars haven’t disappeared apace. That means that we’re probably seeing not just a lingering effect of the housing bubble, or even a pure product of high housing demand, but a new strategy for selling homes that was embraced during the bubble.
“The persistence of this suggests that people have decided that this is a good way to think about selling these kinds of goods,” Strange says, “selling housing in a more auction-like way.”
If a list price once meant the seller’s ceiling, for many homes it’s now the buyer’s floor — the number with which the auction can begin. Part of what’s going on here, Strange says, isn’t just that the small supply of homes for sale continues to push up their price in certain markets like D.C. (bidding wars still made up about 12 percent of sales here as of 2010). Real estate agents are also strategically listing homes below their value to create bidding wars.
“One way to see all of this is that housing is this incredibly important good, it’s easily the most important asset in a typical household’s portfolio. As a share of total wealth, housing is huge,” Strange says. “And yet, the way houses are getting marketed, very broadly speaking nowadays, is an awful lot like it was 50 years ago.”
If you’re a buyer or a seller, you sign a contract with a real-estate agent who understands what’s going on a lot better than you do. They negotiate on your behalf and split a commission, typically about 6 percent. The way information is traded — through home visits, negotiations and market comparisons — is more or less how it’s been done for decades. For most of this time, buyers would set an aspirational price, then negotiate down from there.
“With the rise of bidding wars, we shouldn’t think that the housing market — like other markets — is just going to keep doing things in the old traditional ways forever and ever,” Strange says. “There are going to be changes.”
“People are making these million-dollar trades,” Strange says of homebuyers. “But we really don’t know that much about the housing market, where it’s going, what demand and supply are. It’s an amateur market where people are making these huge, huge decisions.”
The highly anticipated, no-reserve auction in Rancho Santa Fe happens later today. It was on the market for $36,500,000 back in 2006 and for sale ever since – the latest list price was $22,500,000 last year.
This is the second no-reserve auction in Rancho Santa Fe by this company. The first was the gambler’s house, and it sold for $13,000,000 last month:
Any guesses on tonight’s final price?
You’ve heard me say that I think it is my job to conduct a proper bidding war between all buyers and push for top dollar – and I will give them ample opportunity to pay it! In this case, it was 10% over list price.
But the houses that need work are more prone to falling out of escrow once the scope of the project starts to sink in. It is part of the business, and you have to be able to bounce back quickly to maintain momentum.
Here’s the audio update on our progress in Solana Beach.
While I think listing-for-an-attractive-price-to-induce-a-bidding-war is the best strategy to sell houses, it only works if you can run an effective bidding war:
Reader 3rd Gen SD asked yesterday,
“You regularly mention pricing to engineer a bidding war. Do you have a post you could link to that describes your strategy, including how you manage same?”
There are no rules or regulations on how to handle a bidding war – each realtor is on their own to devise a strategy. As a result, most don’t do more than spreading out the offers on the seller’s table and picking one.
Back in the REO days, the banks would insist on countering each bidder for their highest-and-best offer, and that is the most common solution. But agents are reluctant to tell bidders how many offers there are, or at what price point – they just want you to bid blindly. In those cases, at least every bidder has a chance to win, but without some guidance they are likely to be conservative.
When my sellers get multiple offers, I’m working the phones myself. I am asking questions to qualify each buyer, and giving their agent some coaching on what it will take to win.
It’s the pitting of each buyer against each other that results in top dollar sales. They are much more likely to pay a higher price if they have a number to shoot at – AND they feel like they have been treated fairly.
Here are specific examples of how I do it:
Why doesn’t every agent handle multiple offers this way? Because they don’t have to – sellers still think they did well, price-wise, and they can tell their friends and family that their house was sold in a bidding war.
Thinking of selling? Hire Jim the Realtor!
If these home-auction companies spent $100 million per year on advertising, they could go mainstream – and pressure realtors to justify their existence. Thankfully, sellers resist anything that sounds like they might give it away:
According to comScore, online sales so far this holiday season (November 1 – present) have risen over 16% against last year’s figures from the same time. Housing prices are also accelerating month-over-month and are predicted to reach pre-recession prices by mid-2015 (cnbc.com). With the average online purchase sitting at $180.94 (as of this year’s second quarter), selling real estate online seems like an unlikely scenario.
However, heavyweights in the online real estate auction space such as auction.com and homesearch.com are thinking otherwise. Both companies use an online auction model to sell homes to investors and would-be investors online; however, during this holiday season, both seem to be testing ways to give online home buying more mass market appeal.
Are we witnessing the marriage of e-retailing to real estate?
One example suggests the answer to this is yes. Homesearch recently brought on a new CEO, Kal Raman whose background as an eBay/Groupon executive may foreshadow where the industry’s headed. Earlier this month, Homesearch joined the Cyber Monday craze by launching what seemed to be the industry’s first Cyber Monday sale packed with discounts and buyer incentives on homes. These properties were auctioned online through Homesearch’s typical online auction process.
Their most recent promotion though consists of a “buy it now” price, similar to that of eBay, so instead of actually bidding for a home through an online auction, consumers will call Homesearch to receive a price via telephone. If a consumer likes the price and the extra incentives offered, they can purchase the property before it goes to auction (Homesearch handles much of the downstream closing process already). As eBay’s strategy made clear, there are masses of people who are uncomfortable joining an online auction but who react very well to bargain-basement fixed prices.
Given that Homesearch continues to grow their network of real estate agents and broker partners, is it a stretch to imagine the day when an agent shows homes in the neighborhood and then takes their client online to purchase?
In a space where nothing like this has been tested before it’s hard to know for certain how successful Homesearch and others will be trying to scale mass-market retailing strategies to real estate. However, if they’re really able to go the retail merchandising route and apply discounts of 20%-50% off the list price of homes for sale, I can see how people might be inspired to buy their next home online.
Sellers expect their listing agent to toil for weeks and months searching for the right buyer for their home. Let’s face it, that’s how other jobs work – the desired result comes at the end of the effort.
But it’s the opposite when selling a house. The tight inventory has left anxious buyers waiting for the next new listing to come along, and when it does, they pounce on it in the first few days.
This is why Zillow has become the go-to website for buyers. Zillow provides transparency with several great features (and the zestimate is down the list):
1. Zillow shows how long the property has been listed for sale, and how long the property has been on Zillow. The ‘re-freshing’ of listings isn’t fooling buyers, because Zillow divulges the truth.
2. They track how many times the property has been viewed on Zillow, which is a secondary ‘sniff test’, much like the days-on market stat. Once a property has been seen hundreds of times, the buyers start wondering why it hasn’t sold (much like the DOM count):
3. Savvy buyers know that the zestimate is a rough guess of actual value. But Zillow backs it up nicely with three similar listings nearby, AND the last three closed sales – all on the same page!
4. They also show how much the seller paid, and when. Buyers will grant sellers the right to make a profit, so only the greedy are harmed here.
5. The categories of homes for sale on Zillow are prioritized by date listed.
These data points are all in a seller’s favor during the first few days the home is on the market – use them wisely!
The best thing that could happen to the market is a mass marketing campaign by Zillow (or anybody) to explain to sellers that the urgency created in the first few days on the market should be used as a selling tool. Then, at some point, maybe we can convert to an auction-like format to sell houses!
Just had to hedge it a little….from CAR:
This law, on and after July 1, 2015, with respect to an auction that includes the sale of real property, prohibits a person from causing or allowing any person to bid at a sale for the sole purpose of increasing the bid on any real property being sold by the auctioneer.
The law, however, does allow an auctioneer or another person to place a bid on the seller’s behalf during an auction of real property if notice, as specified, is given that liberty for that bidding is reserved. The law also requires in this regard that the person placing that bid contemporaneously disclose to all auction participants that the particular bid has been placed on behalf of the seller.
The law exempts a credit bid made by a creditor with a security interest in the property that is the subject of auction when the credit bid can result in the transfer of title to property to the creditor.
Finally, this law prohibits a lender or an auction company that is retained to control aspects of a residential real property transaction from requiring, as a condition of receiving a lender’s approval of the transaction, a homeowner or listing agent to defend or indemnify the lender or auction company from any liability alleged to result from the actions of the lender or auction company and declares a clause, provision, covenant, or agreement in violation of this prohibition to be against public policy, void, and unenforceable.
Assembly Bill 2039 (codified as Civil Code §§ 2079.23 and 1812.610) (effective July 1, 2015).