Firm Offers A New Take on Reverse Auction Solutions
Online auction house Countdown To Buy, Bethel, Conn., is giving reverse auctions a new real estate spin.
The concept may not be novel in the Internet world but it certainly is new in the real estate world, founder and CEO, Jim Hodson says.
Reverse auctions suddenly were in the spotlight as the foreclosure crisis progressed. In October 2008, the Treasury Department considered the use of reverse auctions as a market mechanism that would allow the government to purchase "toxic assets" at the lowest price. It would have been one way to use the $700 billion rescue plan to take those toxic mortgage-backed securities off of banks’ books. In short it did not work because it was too complicated and too costly for taxpayers.
Apparently reverse auctions work better on a much smaller scale.
Following its first private-label deal with high-end golf resort client Diamante Cabo San Lucas, for a limited time Diamante is able to use the CTB method independently from CTB to auction a set of properties ranging from $250,000 to $2.2 million. The applicable time period varies according to property types at anywhere from 30 days to 50 days.
Instead of going to the CTB website Diamante can conduct auctions under its own brand. While invisible, the CTB platform helps expedite the real estate sales cycle by automatically matching sellers and qualified buyers. The system reduces a property’s list price by 1% each day within a prenegotiated price range.
In today’s market, Hodson told this publication, reverse auctions are attractive to national and international buyers and sellers.More so in the resort property market, which has grown significantly during the past 10 to 15 years. Many investors who bought several lots within popular resorts, made their money on them, and now are ready to sell them, he says. Recent examples are clients in the Dominican Republic. “At least five other clients lined up should this test go well.”
What is different about the resort property is that market changes over the past decade have made it more difficult to price them. “There’s really no transparent and convenient way to buy a high-end resort property right now, so sellers play a lot of games when it comes to pricing them,” he says.
For example, someone may buy a place within the resort for $1 million but also have a $300,000 lifetime golf club membership built into that property. And these perks are often used to keep these properties’ prices artificially elevated. After these properties are sold and the seller no longer is the developer, the incentive changes since the owner’s main interest is to sell the property. Ultimately it means there are more business opportunities in need of an outlet that facilitates the sales transaction.
If until recently CTB focused on various traditional residential real estate sale transactions including REOs and short sales, the agreement with Diamante opens the way to commercial real estate transactions adding to the mix specialized resort sales.
One challenge especially in the golf resort market is property valuations. Alongside their existing methods Diamante is using the CTB approach to sell different property types. “It gives them a better understanding of how many buyers are in the market” and the option to see more buyers come out to bid during the CTB exclusive, time-limited offer.
The Diamante sales team has come up with a list of 200 potential buyers “they feel are on the fence and may come out,” he says, which is why a private-label format helps attract these buyers.
Given market value assessment challenges, usually prices start at the top of the market and may go down by as much as 50%. The number of days properties run on the site depends on the property. In foreclosure states CTB data show many buyers were putting their best bid forward earlier. If anything, he recalls, buyers are moving faster even if they are not competing about anybody, “because they are a little impatient and want to jump and get the property for what they think is a fair price.”
And while reverse auctions are not new to the mortgage market, CTB “has some nuances” that are unique to the process, he says, such as the open phase and a lock phase.
In a reverse auction usually buyers would not jump in to make an offer but rather wait—and there is no way to know whether there is one, or maybe five people interested in that property. CTB created the lock-phase requirement so prospective buyers place their offers by a certain time.
Another feature unique to CTB, he says, is that buyers are exposed to each other “so they know there’s someone else who’s competing, but they do not know what price they are competing against,” and that is different from traditional reverse auctions.
The process is much more transparent. If normally sellers in a reverse auction cannot know how many or who were the interested buyers, sellers using the CTB method (such as Diamante) know about these possible buyers and can show them other properties that might fit their investment goals. Plus, the platform can be used for any type of property including multifamily units and condominiums.