New House on the Block
Forget comic books and collectibles — the latest rage in the online auction world is real estate.
You'd have to be a little bit obsessed to camp out overnight to be first in line for something. Groupies do it for concert tickets, diehard sports fans do it for playoff seats. But who in the world would do it for a new house?
Believe or not, lots of people. The housing market is so hot in some areas that prospective buyers have been known to line up for hours for the chance to buy into a new development. Others take their chances in a builder's lottery, hoping to "win" the chance to buy. The frenzy makes it difficult for a builder to price a new home without wondering if it could have fetched a higher figure, and the tight supply makes it hard for some prospects to be in the right place at the right time to buy.
There is a solution, and — its being the twenty-first century and all — it's on the Internet.
Auctioneers have long known that the best way to establish market value is to let the people who want something tell you how much they're willing to pay for it. That solves the builder's pricing problem, but it doesn't help a buyer whose schedule or location makes attending an auction impossible. The Internet allows a seller to run an auction 24 hours a day, 7 days a week, letting all prospects make bids on their own schedule.
"An online sales event is terrific for high-demand properties, where you have buyers lined up at your door," says Richard Jackson, co-founder and EVP of the online auctioneer iBidCo.com. "People taking vacation time to camp out before an on-sale date is not a great way to start a relationship with a customer. An online event in lieu of a lottery or a camp-out levels the playing field for the consumer and keeps the builder from leaving money on the table."
An auction is a fast and efficient way to sell, and the competitive nature of the bidding creates a sense that the selling price was a true market value. That's one reason why real estate auctions are often associated with foreclosures (and indeed many properties sold at auction are distressed in some way). But there are other markets where values are best set by the people who want to buy, sometimes desperately. It can be difficult to establish market value on new construction, time shares, celebrity homes, unique or unusual properties, and vacant land. Online bidding combines the pure pricing of a traditional auction with the 24/7 access and virtually limitless marketing reach of the Internet.
Live auctions may not be in any danger of being displaced by their online counterparts quite yet. There's nothing quite like the competitive thrill that comes with a fast-talking auctioneer's voice urging you on to higher and higher bids. (In fact, auction houses count on that thrill to get prices up.) But the electronic revolution is spreading, and auction Web sites now include plenty of real estate, from empty lots in New Mexico to new residential developments in Florida and every kind of property in between. Some auctions are held exclusively online, others are conducted as a combination of online and real-life events. Still others are not held online at all, but can found using powerful online tools.
It's not for everyone, of course, and as with any Internet undertaking real estate auctions require a good bit of research and a fair amount of caution. Understanding the different ways you can use the Internet to find the right auction, and the right property, is the first step.
Baby Steps: Auction Directories
There are thousands of local auctioneers and real estate agents conducting real-life auctions on any given day, and few people have the time to monitor all those individual sources to find what they want. Online directories of available properties are extremely efficient and easy to use, allowing you to search up-to-date listings by state, by price, and by type of property. Looking for new residential construction in Florida? Commercially zoned property in Georgia? Undeveloped land in Canada? Take your pick.
For a seller, too, an auction directory is a good way to test the budding market without having to commit to the online revolution. In Romney, West Virginia, for example, a bank had requested the auction of an exclusive mountain estate with hangar and airstrip. Don Hockman, owner of Hockman Auctions, drafted a marketing plan that included advertising in aviation circles — after all, who better to buy a fly-in estate than someone with a plane? — and listing in online search engines. The estate was not available for online bidding, but it did turn up in multiple directories during a hunt for unique property. Prospective buyers in search of a fly-in property, even if they'd missed the seller's marketing blitz, could have discovered this property on their own and contacted the auctioneer directly.
Hockman may appreciate the extended reach the Internet provides, but he's no believer in online bidding. "An auction is the best way to sell any property in the accelerated market," says Hockman. "But I just don't believe we'd get the response online that we can get with traditional auctions." Why, he wonders, would he have wanted to limit his prospect list to the online audience? Besides, Hockman says flatly, "the market's not ready for online auctions of real estate yet."
If you're not ready for real-time online auctions either, you can still put a toe in the water by trying one of the auction directories. As a rule, directory sites provide a description of the property, some basic details about the auction, and a link to the local auction house or real estate agent conducting the sale. After you've gone online to find the auction, the Internet's role is finished and real life takes over. Go visit the property, do your homework, follow the pre-auction instructions of the auction house, then show up on the right day and grab a bidding paddle.
Auction Marketing Institute (www.auctionmarketing.org)
A trade association for the auction and appraisal industry, the Auction Marketing Institute includes on its Web site an Auction Find tool that searches auction listings on everything from comic books to domain names to wine and cigars. In addition to category and regional searches, it includes a date range feature that lets you look for auctions within a specified period of time. So if you're looking for real estate auctions in the Plains states within the next three weeks, you're in luck.
Internet Auction List (www.internetauctionlist.com)
The Internet Auction List is a directory of all types of auctions worldwide, online and off, including real estate. It includes an Auction List of currently available properties as well as a Search Tool that lets you sort by category, country, or name.
National Association of Realtors (www.realtor.org)
The Auction Information Center of the National Association of Realtors Web site is a good place to start. It has a wealth of information about auctions from a real estate agent's point of view, which can be very helpful to read before you start searching for sales. There are basic tutorials on auctions and what makes a property a good candidate for sale at one. Finally, you can find listings of upcoming auctions, with referrals to the local auction house.
National Auctioneers Association (www.auctioneers.org)
The Find an Auction tool lets you search a large directory of all current auctions, including antiques and collectibles, farm equipment, and real estate. Search for commercial or residential properties, or undeveloped land, anywhere in the United States and Canada.
The Real Deal: Online Auctioneers
If you're ready to take the plunge from real-life auctions to their online counterparts, there are a few important things you should know. First, online auctions include pre-registration followed by bidding for a specified period of time, but the "winning" bid isn't a final transaction. Real estate regulations vary by state, and the sale isn't binding until a contract is signed. There are also two very different types of property listings. The first is akin to a classified ad: a seller lists a property and a buyer makes a bid, which the seller is then free to accept or reject. The second is an actual online auction, which is more the counterpart of a traditional auction. Sellers are committed to sell, bidders are qualified to buy, and although the sale still isn't final until closing, it's a pretty good bet that the high bidder will end up owning the property.
At online auctioneer sites you'll generally find property listings with floor plans, photos, and sometimes even a virtual tour. You'll also get information on how to see the properties or model homes in person and instructions for registering and bidding. Online bids are pretty much the same as those placed in a traditional auction, and if your bid is accepted you'd better be prepared to settle up. Some auctioneers work with mortgage companies to get buyers pre-approved before the online event.
For some sellers, an online auction is a handy backup to a marketing plan and a good way of finding out what the market will bear. A minimum reserve price is set, as is a higher "buy now" price. If you're interested in the property, you place a bid at or above the reserve. If you're very interested, you continue to bid against other potential buyers. If you're extremely interested, you can prevent it from being auctioned at all by buying at the premium price. The "buy now" option gives eager buyers a chance to snap up their dream home, and bidding gives more cautious ones the chance to test the waters on price.
For buyers, this system is a way of creating confidence in market value and avoiding buyer's remorse: If you're not entirely sure a house was worth $249,000, at least you know there was someone else willing to pay $248,000 for it. For builders, it's a price test: Put the first block of houses in a new development on the market with a $200,000 reserve price and a $250,000 "buy now" price and see what happens. Depending on sales, the second block of houses can go on the market at an adjusted reserve.
For example, last November the first nine homes in a new development in Upland, California, were scheduled to be sold at online auction on iBidCo.com, which sold 500 homes online in 2002. Two weeks before the auction, a "buy now" feature was activated on the Web site, and all nine homes were snatched up at the premium price. The 90 remaining homes in the development can be priced according to the demand shown in this first limited release.
Richard Jackson of iBidCo.com adds that online bidding can function as an after-hours sales office. "We'll often have a 'buy now' transaction concluded right in the office, with the sales agent actually doing the clicking for a client," he says. "But the strongest time for placing bids online is between five and eleven in the evening. That means we have a virtual sales office available twenty-four hours a day."
Online bidding is sometimes done in conjunction with a real-life auction, a "simulcast" of sorts. A recent event at the Burbank Hilton in California drew 100 bidders in person and 18 more online, all pre-qualified. For that event, iBidCo.com ran the live auction, complete with fast-talking tuxedoed auctioneer. The company partnered with eBay Real Estate, which implemented simultaneous online bidding that featured the iBidCo CTO (also tuxedoed) sitting at a laptop relaying online bids to the live auctioneer.
Simulcast bidding has its nay-sayers, though. "We don't even allow phone bidding," says Don Hockman, let alone Internet bidding. Prospective buyers who show up in person for an auction can get skittish when they see an auctioneer taking remote bids. "Bidders think you may be on the phone with the owner, bidding against them to get the price up," he says. Hockman says he's seen bidders tear up their paddles and walk away when they hear a phone bidder will be participating. An anonymous bidder making online offers can raise suspicions even further.
Jackson downplays the risk, since it's illegal for a seller to place bids in an effort to run up the sales price, but he agrees that the trust factor is critical. "A buyer has to have confidence that a cyberbidder is real," he says, noting that that's one reason iBidCo worked with a well-known company like eBay on the Burbank event. That's indicative of how important the level of buyer trust can be — trust that gets harder to find as you move from real life to the phone to the Internet.
Note: As online auction addicts already know, if you use Internet Explorer 5 as your browser, the Auction Manager (under the Tools menu) can monitor the status of one or more auctions. Auction Manager will notify you when someone places a higher bid than you did, and let you know when an auction closes.
| IbidCo (www.ibidco.com)
IbidCo specializes in new communities under construction by major developers.
New homes are sold at auction to online bidders who have been prequalified
and assigned a PIN number that lets them participate in the online event.
Open house events, model home tours, or private viewings give bidders opportunities
to see the available properties, and the "buy now" option allows a buyer
to purchase (at a premium) without having to bid.
At Rbuy, you can see what properties are available and get information on how to see them, by appointment or at an open house, before you bid. Listings include new homes, resales, investment properties, luxury properties, and foreclosures. Auctions run on the site for a week or more. Only real estate agents who have registered at Rbuy can list homes for auction on the site.
RealtyBid International (RealtyBid.com)
RealtyBid International is a new site specializing in online sales of institutionally owned real estate. Offerings are few, but pricey. It does allow individual listings, but only for properties over $500,000. Bids are considered binding, and the credit card number you provide at registration will be charged if you fail to complete the contract of sale.
Bid4Assets provides online, traditional, and Webcast auctions for government and private sellers who sell land, cars, jewelry, computers, timeshares, bankruptcy claims and more. Browse the Real Estate Listings to find government-seized properties for sale, or to buy or sell timeshare properties.
Zugbug describes itself as an "online real estate negotiation system" — but it's really an auction venue. Bidding goes on for two weeks, and after bidding has closed the transactions are conducted between buyer and seller independent of Zugbug, just as they are on eBay. Instructions to bidders suggest that they "may want to conduct research on a property prior to placing your bid," which certainly sounds like a fine idea. Zugbug allows principles to list their own properties or have their brokers list for them.
The Big Kahuna: eBay
How can you use "auction" and "online" in the same sentence
and not follow them with "eBay"? From its roots in swapping Beanie Babies and comic books, eBay has evolved into an amazing marketplace where items of every stripe may be sold for fixed prices or auctioned to the highest bidder. As an online auction venue, it's a little bit like an empty lot rented out for a weekend
flea market. The venue takes no responsibility for what goes on within, which can be a relatively small matter if you're buying a used CD and quite another if you're buying real estate. Some consider it one of the purest of the "many-to-many"
Internet model. Fans swear by it. Newcomers might well be advised to start on items smaller than condos and ranches.
It certainly has its advantages. In New
York last December, an early-season snowstorm struck the weekend a studio apartment
was set for the auction block. In the real world, the auction might have been
poorly attended or even cancelled. But on eBay it went off as scheduled and nobody
got stuck in the snow, got their feet wet, or slipped and fell on the ice. The
hitch? The lackluster bidding generated a handful of low bids, and when the bidding
was over there were only two offers above the reserve price. Several days later
the seller was still considering them, along with some offline offers. He had
no obligation to sell, and the bidders had no obligation to buy.
Still, some unusual
properties were sold on eBay Real Estate last year, including an island in the
Virgin Islands, a converted 747, and a former missile silo (which went for $2.1
million). But what's really happening at eBay Real Estate isn't about individuals
trying to unload their own apartments or celebrities looking for a publicity stunt.
"Homebuyers never really know what's happening between agents," says Doug Galen,
vice president of eBay Real Estate. "Price negotiations take place inside a black
box. What eBay does is break open the black box and make pricing transparent.
The process feels more trustworthy to a consumer."
There's no way to tell how
many eBay listings result in actual sales, since the transactions take place offline.
But the company had 144,000 real estate postings in 2002, with an average of 1,000
viewings for each property listed. That starts to sound like more than Beanie
Babies, and real estate companies are starting to take note of the new kid on
Galen says that online auctions aren't a bad thing for real estate
agents. Unlike travel agents, who found themselves scrambling to compete with
online ticketing services, real estate agents can use auction technology to help,
not hurt, their business.
"A real estate agent's true value isn't the transaction
— it's the knowledge and expertise to guide a consumer through the morass
of decisions that need to be made," says Galen. And with the amount of traffic
each listing gets, putting a property on eBay can be the "ultimate open house."
After all, asks Galen, "what agent wouldn't kill for a thousand new leads in a
single open house?"
There are four divisions of eBay Real Estate: residential
(including new homes, resales, and foreclosures); commercial property; timeshares;
and land parcels. Within the residential division, new homes are sold in partnership
with companies like iBidCo and BuilderHomesite, and foreclosures are sold through
agents. The commercial property area has developed somewhat organically, and there
are no partnerships there yet. But the two biggest categories are timeshares and
land parcels. Offerings include international and domestic timeshares as well
as recreational plots, land ready for development, and investment parcels. More
than 15,000 parcels of land were posted on eBay Real Estate in its first year
alone, with the total topping 20,000 by the end of 2002.
If it strikes you as
unusual that people are buying empty lots, often sight unseen, on eBay, you're
not alone. Even Galen admits that it seems like an odd thing to do — at
first. "There are people who believe that land values only go up, and this is
their chance to own a piece of America," he says. People have different levels
of disposable income, he adds, and make different choices about how to spend it.
"Some people buy a lottery ticket, some people buy their lottery ticket in the
form of land," he says. "Why not?"
Why not indeed? It's no more unusual (or odd)
than camping out overnight outside a sales office. And it's certainly more comfortable.
eBay Real Estate (ebayrealestate.com)
Find real estate properties
using the Real
Estate Search tool. Beware of the distinction between classifieds and auctions:
If the listing tells you to contact the seller, it's a classified. An auction
listing will invite you to make a bid.