New Internet Auctions Might Help Sell REO
A new concept for auctioning residential real estate is being tried here at a downtown condominium. If it proves successful, the Internet-based system could be a boon for lenders everywhere who need to dispose of foreclosed properties.
The auction, which will begin on Feb. 8 in Los Angeles and run until no more bids are received, is being billed as the largest-ever simultaneous Internet auction of residential properties. It is taking place at the Rowan, a 206-unit building in which only 30 apartments have been sold to date.
The object of the auction is to sell 79 of the loft-style units, with the result that more than half the apartments will be sold at the building’s opening. Lending policies require that 50% of the building is sold before sales can be closed. However, unlike conventional auctions, where items are sold one after another in a high-pressure environment with the auctioneer calling the shots, the Rowan auction is being handled through a proprietary software program called the “Intellimarket Internet Auction System.”
With the Intellimarket system, all 79 units will be sold at the same time, with bidders being able to see the amount other buyers are offering for every property on large bidding screens at the auction site or on their own computers through a secure Internet site. The auction clock resets every time a new bid is received so bidders have ample time to consider their next step.
The auction ends when there has not been a bid submitted on any of the properties for a specified period of time.
“In a traditional auction, not only is the order in which the homes are sold not the best for most bidders, but since the bidding is done so quickly, buyers are under tremendous pressure to make a very important decision in literally a matter of seconds,” says William Stevenson, an auction pioneer and president of IIAS. “This creates a situation where buyers often make a mistake, either bidding when they should not or not bidding when they should.”
On the other hand, his system gives would-be buyers ample time to make decisions and switch to other units if they are outbid. “This versatility benefits everyone, including the seller, who often gets better results because buyers are able to maximize their opportunities to purchase the home they most want,” Mr. Stevenson says.
Buyers interested in participating in the auction must first secure pre-qualification for a mortgage from the developer’s preferred lender, complete a registration form and put down a “good fund” deposit. They will then be issued a personal identification code that they will use during the bidding process.
Buyers are advised to tour all of the units in their price range before the auction and rank the ones they are most interested in purchasing, so that they can easily switch from unit to unit in the event that they are outbid.
The sales office is offering all registered bidders tutorials and “How to Buy” seminars so they understand how to participate in this unique auction. Intellimarket is the brainchild of Nobel Prize nominee and California Institute of Technology professor Charles Plott, who spent more than 10 years developing the software.
“We have found that both buyers and sellers are very satisfied with the results of a simultaneous auction,” says Mr. Plott. “The transparency of the auction gives buyers the confidence that they are not paying over the market rate. Sellers secure higher prices for the property by allowing buyers to switch their bids from unit to unit and save marketing costs by selling so many units at one time.”