It’s just a matter of time before a big player brings the auction format to the residential resale market. These guys are in position – they are auctioning commercial properties, and with their sister company Homes.com wanting to be the #1 search portal, it would be a natural transition:
When Sotheby’s sells paintings at auction, no one thinks of them as being distressed.
So why does real estate sold at auction get a bad rap?
Ten-X, the world’s largest online commercial real estate exchange, makes a positive case for auctions as the fastest and most accurate way of finding a property’s true value. By combining 21st Century online sales tech with industry-leading data from CoStar, Ten-X cuts through the inefficiencies of the traditional sales process, finding sellers the right buyer in an average of 100 days from marketing to close.
TRD sat down with Ten-X President Steven Jacobs and Vice President Victor Gutierrez to learn how their platform is perfect for sellers feeling stress in the current market, who need to get assets off their books before they become distressed.
Ten-X’s sales platform is built to establish a property’s value from the start and then find the right buyer in a timely fashion with as little back and forth as possible. But what may seem like an obvious way of doing business is actually the reverse of how most real estate deals are done.
“The way traditional sales are done is fundamentally backwards,” says Gutierrez, who describes the inefficiencies of the normal process: “I give you a bit of information, and then you give me the price you’re willing to pay, and then I give you the rest of the information, and then you adjust your price, and now we’ve been going back and forth for months.”
“When you’re selling a property, by the time you get through the first and second round of offers, then the best and final round and pick an investor, it’s taken five or six months,” adds Jacobs. Only then does the due diligence begin, after which, “a majority of the time you get a retrade.”
In the end, months after going to market, the result is a deal for a lower price than the initial offer. “It becomes a negative experience,” says Jacobs.
With Ten-X, this order of operations is turned on its head. “The buyer does the due diligence before making an offer,” explains Jacobs. “As a buyer, by the time you come to the auction, you’ve read the rent roll, you’ve toured the asset, you’ve looked at the financials, you’ve seen the property condition report. You’ve had access to best-in-class CoStar data and documents. All the stuff that you typically have to do post-contract, you’ve already done beforehand.”
This transparency benefits both sellers and buyers. For sellers, they can complete a sale in a fraction of the time as a traditional deal while retaining a similar degree of control over the price thanks to their ability to set a reserve price under which they can choose not to accept an offer. For buyers, not only do they have all the information before making a bid, but the process is transparent and fair, what Jacobs describes as “an even playing field.”
Buyers, like sellers, access the Ten-X platform through a robust digital platform that puts all the information they need to make an informed bid at their fingertips. Ten-X has also brought Stripe technology to the platform, which has streamlined the buying process further by giving bidders the ability to securely link their bank accounts for instantaneous approvals and real-time proof of funds updates.
They are only three months into their mega-launch of Homes.com, and CoStar founder and president Andy Florance is already taking victory laps. He is also the #1 cheerleader for buyers going directly to the listing agent, which will be the end result of all the changes underway. Here’s Andy talking in front of a group of realtors:
Florance said Homes.com’s “Your Listing, Your Lead” model was the antidote to agent and consumer frustrations, as evidenced by triple-digit traffic growth during Q3 2023 that gave them a contested lead on Realtor.com as the second-most-trafficked residential portal.
“In the rest of the world, when an agent has a listing, their name is on the listing, their phone number is on the listing, and there’s branding happening,” he said to riotous applause. “Only in the United States is it the portals’ brand goes on the listing rather than the agents’ brand. That’s bizarre.”
Although CoStar didn’t reveal its exact plans for Matterport, Florance did outline a plan to capitalize on digital twinning, a term used to describe hyper-realistic 3D listing experiences.
Florance said digital twinning could enable homebuyers to visualize what their current home furnishings would look like in a new home, play with renovation options for a fixer-upper, or walk with a virtual agent through a virtual listing.
“In residential focus groups, homebuyers are telling us that they prefer listings that offer 3D digital twins so that they can best understand the property,” he said. “Adding virtual reality to Matterport, you can take a virtual tour of the property with your virtual agent who will walk into the space with you.
Florance spent a few moments of the call focusing on buyer-broker commissions and reiterated Homes.com’s potential value when NAR’s settlement terms go into effect this summer. Florance said Homes.com will give buyers an avenue to directly connect with listing agents to view a home, bypassing the potential pressure to sign a representation agreement before they’re ready.
“Currently only 30 percent of buyer agents ever get a written agreement at any point in the transaction process,” he said. “Homes.com connects homebuyers directly with the listing agent, so they can arrange to see the house with no paperwork or commitments.”
“We are increasingly confident in our ability to build out the number one residential marketplace in terms of traffic revenue and profitability in the years ahead,” he added.
CoStar owns LoopNet, the website for commerical listings, as well asten-x.com/which is an online auction house for commercial properties. It won’t be long before they bring auctions to the residential market, will it?
There is a new disrupter born every day! This one was created by a VC-backed appraisal company, so their gadget begins with a free appraisal to help determine the list price. Then they offer a little something for everyone – a week on the MLS for full exposure, then an auction-like event using the appraised value as the opening bid….unless a buyer wants to pay the Buy-It-Now price during the showing week! It doesn’t matter much what the whizbang feature is – all that matters is spending millions to advertise it to the masses:
If no offers are submitted once the Showcase Week ends, the home remains on the market at the pre-appraised value for a total of 30 days. This means that as long as a single buyer is willing to offer the pre-appraised value, the home will go under contract for fair market value within 30 days.
Fortunately, even if the Winning Offer Price is above the pre-appraised value, it’s unlikely that the second appraisal would come in below the contract price. See this FAQ to understand why.
I mention how tough it is to find anyone who has a bidding-war strategy, but it’s because our expectations rose dramatically in 2010 after witnessing one of the best of all-time.
They were auctioning off a vacant lot owned by the City of Del Mar.
This video starts at the beginning of the auction, and the bidder at the bottom of the screen was a proxy for Carson Palmer – who eventually got the last laugh when he built a 6,580sf house on this lot and then sold it for $18,000,000 in 2020.
The auction starts at $1,000,000 – but watch how fast it climbs, particularly from $3,000,000 to $4,000,000. Did he have to pay that much? How about the guys in suits running around, the cameraman, and the auctioneer’s chant all contributing to the excitement. It was over before anyone could think!
Carson also paid a 10% buyer’s premium on top, so his final purchase price was $4,400,000:
Once we raised the list price yesterday, the message spread quickly. I still had a good turnout at my open house – about half of the amount of attendees that I had on Friday – but many came just to ask why the price changed.
Agents appreciated the transparency though, and they were quick to realize the benefits. If your buyer is only interested in paying $3-something, there is no need to go through the process of making an offer and getting your hopes up if there’s no chance of being in contention.
It’s part of the slow-motion auction. Give everyone a shot to buy the home and have full transparency propel the outcome.
There is no guidance on how to effectively handle a bidding war.
I don’t see or hear anything from NAR, CAR, brokerage managers, or team leaders on how listing agents should handle a bidding war, other than to put the offers on a spreadsheet and let the seller decide. But they are paying us a lot of money to give them advice, and that’s all we got? Embarrassing.
For realtors who think that’s good enough, then fine. Do you mind hurrying up with that retirement?
I made an offer on behalf of buyers last Thursday that was 6% over the list price. The listing agent won’t tell me how many offers they have, what price they are at, or even how the winner will be determined. After five days of waiting, we are left with nothing except “I’m trying to get you a counter” that came last night.
It never occurs to them that their inaction for days causes the buyers to cool off in the hurry. The agent will finally get around to picking a buyer they like, and the home will finally sell. But it won’t be for top dollar.
When I receive multiple offers, I’m transparent with everyone.
With our Cedarcrest listing, I’ve been telling every buyer and agent exactly what to expect. I encourage all of them to make a written offer, we will request their highest-and-best offer on Monday, and then find the winner on Tuesday.
Once the offers are in, usually half of them won’t submit a highest-and-best because they already did, or they cooled off quickly. No problem, and thank you for your offer.
We’re up to nine offers now, yet only two or three have expressed their sincere desire to buy this house. What a great filtering system to find the real players! Once I’ve confirmed with every agent that their highest-and-best offer has been received, I ask them if they want to go any higher – and tell them that if they don’t they are going to lose.
The efficiency is spectacular. The buyer-agents have the intel they need to literally tell their buyers, “If you don’t go higher, you’re going to lose out”. Every buyer would like that clarity in which to make a decision – yet every other listing agent thinks it’s better to keep them guessing in the dark for days.
A few will be startled by the transparency because they have never seen it before.
They think they deserve some favoritism because they are a cash buyer, or because they were first, or because their agent is a sweet-talker…..but what they really want is to score an off-market deal at a lower price because they see a lot of those happening – and they’ve never seen anything like mine.
Another agent asked about the action because she has a new listing coming in the neighborhood that is on the canyon side. She got what she wanted out of me, but then wouldn’t tell me anything else about hers, other than, “You’ll see it when it’s on the open market”. Great – we’ll see how she does vs. me!
I’ve pitched Robert Reffkin a couple of times about auctions. Even though he is the Compass CEO and running an operation of 30,000 agents and employees, he replies to every email!
He said they are working on the things that agents ask about the most. Apparently, he’s getting more inquiries because Compass has partnered with Paramount Realty USA, a national auction house!
I doubt I’ll be using their service, but it is fantastic to see autions becoming more mainstream. Hopefully they will be the primary way we sell homes some day. They wash out all the agent shenanigans and deliver the pure and most transparent way to sell a home.
Here are slides from their pitch:
Having buyers complete their home inspections prior to the auction would eliminate most of the problems we encounter now during escrow. Currently, the contingency of home inspection can screw up a sale in two different ways. 1) Buyers find unknown surprises and use them to their advantage to work over the sellers (again), and 2) Buyers aren’t as committed to closing the deal because they know they have contingencies that give them the ability to walk away, no charge. Auctions would wipe out all of the above.
But my favorite thing about the auction format is that it gives everyone a fair shot at buying the home, which isn’t guaranteed today…unless you list your home with me. I received four offers on my latest listing, and we have a winner:
Textbook example of how to run an auction – hit ’em fast and furious in the beginning to get bidders to jump, and hope for the best. It worked beautifully too, because I’m not sure there was more than one bidder. P.S. Carson Palmer was the buyer – he built a big bomber on the lot, and then got the last laugh when he sold it for $18,000,000 in 2018:
P.S. The buyer paid the 10% commission – purchase price was $4,400,000.
It would have been a good idea to launch the auction format on an industry-wide basis during the frenzy. But how about now? They are still a good idea because auctions bring transparency and certainty to the home-buying process, which buyers would appreciate and make them more likely to engage. Excerpts from article linked below:
If a home has been listed for a long time without much interest, it may be overpriced, according to Mr. Lesnock. During the pandemic, heightened demand has created bidding wars among buyers, with some prime properties selling within days of listing. If a residence isn’t getting any traction in one of the hottest real estate markets of the modern era, there’s a problem.
“Why is it not selling? It’s the windiest day on record, why is this kite not flying, right? That’s the way to think about it,” Mr. Lesnock explained.
The auction process also allows more transparency, according to Mr. Pchelintsev. Both buyers and sellers can follow the bids, either at a live auction or, increasingly, online.
“You get a notification on your phone. Someone just made a bid bigger than you, and you go, ‘how dare you?’” he said. “You go on and place a bigger bid and now you’re basically, apart from trying to get this amazing house, you’re also In sort of a little bit of a competition.”
That competition can help drive up the price of the property, according to Randy Haddaway, CEO and founder of Naples, Florida-based Elite Auctions.
“Sellers get more through this process than they would otherwise,” he said. “You get a group of millionaires competing against each other—and none of them are used to losing. They don’t want to walk away and that drives up prices.”
Mr. Lesnock agreed. “If you do [an auction] correctly, it will generate fair market or better prices.”
The network insinuates that auctions are giving houses away, but the initial prices seem ridiculous:
Dr. Alex Khadavi, a celebrity skin doctor in Los Angeles, was hoping for a quick sale and big payday when he finally completed a 21,000-square-foot mansion that took seven years and tens of millions of dollars to develop.
But a little over a year after he listed it for sale — with a price tag featuring a string of lucky 7s at $87,777,777 — the doctor’s dreams of cashing out are being crushed by a mountain of debt, unpaid contractor bills, bankruptcy court proceedings and trouble with the law.
Now he’s running low on luck, money and time.
Khadavi, who filed for Chapter 11 bankruptcy protection about two weeks after putting the home on the market, hasn’t lost his sense of humor, though.
“The home is sandwiched between billionaires, and I’m the poorest guy on the block,” he told CNBC with a laugh.
