There have been thoughts that selling real estate could become fully-automated, and realtors as we know them will be kicked to the curb. Here’s an example of how it could look:
For robo-real estate to succeed, sellers would have to be convinced that utilizing an auction-type method to sell their house is the best option – which it is. The banks might convince themselves someday, because they have the experience to figure it out.
But as long as there are sellers who believe that they are the ones who determine sales price, regular realtors will be around to serve them.
Interesting to see what this one sells for, and when.
Auctions get the best price in Australia. But they still have agents that gloss it up. And jazz bands at the auction served on the lawn, Saturday afternoon.
Nothing like the US courthouse jobs.
Auctions help buyers when the market is falling (because it prevents them overpaying) but hurt buyers when the market is rising or about to break out (because it prevents the sellers from selling for less than market value to an astute buyer who just happens to get their offer in before the crowd).
As an example, a couple of years we auctioned off some farmland the value of which was just starting to heat up. The auction drew over 200 bidders and everything went higher than anticipated. Before the auction, we had several potential buyers lining up with offers well below the true market value and we told them well just place a bid at the auction. Many of those “buyers” didn’t even bid because they were basically blown out of the water.
Once the auction was over, some of our neighbors were upset because the “price discovery” meant that they were no longer going to be able buy land at the price that they thought it was worth which was about 1/2 to 2/3 of the fair market value.
Since then, the land has gone up another 50% and so questions of a bubble in farmland are certainly justified. However, corn is now close to 7$ when just a decade ago it was more like 2$ or under. Cash rents on farm ground have also increased dramatically.
Auctions can also work to a sellers advantage in a declining market to the extent that they provide somewhat instant liquidity for a seller that really needs to get out quick.
I think sellers are scared to give up control of the price. They really just don’t want to come to terms with the actual value of their property. Put a hot property on the market at the right price and a bidding war breaks out resulting in something pretty similar to an auction environment. There’s a few other factors involved in a bidding war but one of the top couple of prices is going to be the winner.
The bigger issue is probably figuring out financing and maximum bids for potential buyers in an auction. An FHA buyer with $10K (3.5%) down can bid a lot more than a traditional buyer with $40K (20%) down. Obviously you’d like to sell into a bidding pool that has the potential for higher bids.
The auction format probably works better in the higher end markets. There’s more experience and understanding by the participants.
In the the US, auctions often have hidden minimum prices (“reserve prices”). This means that an auction is not really an auction, but a scheme where the seller again controls too much of the process by having it both ways:
Buyers have to bid real money, but sellers can decide after the fact whether the “winning bid” will be accepted.
jus7me
And shills, dont forget shills!
Jim,
The last house we lost out on was an online closed (sealed/blind) bidding process where the only person (supposedly anyway) who saw the bids was the asset manager at the REO holder (in this case, Carrington). Even the agent (who was a Carrington employee) didn’t see any of them, and therefore was not able to give any “hints” to anyone where any other bidders were.
I think markets (even thinly traded ones) are very efficient. We may not like where they are, but the reflect the collective assumptions about the future; though one must consider the winner’s curse in an auction format.
In open-style bidding auctions, I think the winner’s curse is more pronounced, but in a closed-style bid auction, it’s less so. There are no price cues other than recent comps.
Oh, and EVERYONE is trying to “steal one from the bank” as Jim has said. If a property is listed below market value, it gets loads of offers that are simply too low. Usually at least one participant knows what it was really worth.
Chuck