The Case for Auctions

eBay for Houses
Probably one of the more frightening worries to real estate agents and their companies today is the possibility that the Zillow.com types of companies could turn the real estate world upside down.

Right now, Zillow allows home owners to place their house on the market at a "Make Me Move" price. The brilliant idea here is that almost anyone will sell at SOME price. Wouldn't you?

You can also sell more conventionally online there too, either with an agent or not too. What's fascinating though is that the "Make Me Move" option can actually act like an eBay for houses.

While a number of people are trying to sell real estate online, including eBay they are really data stores that place the data online at a rather fixed price. The Zillow option allows for a pre-determined price set that is available to local market viewers, who can then begin negotiations at their leisure, and though the sellers may not be actively seeking a sale, they have indicated that they would sell at SOME price. So far, it's all free.

Why is That Important?
See the problem with marketing real estate is that you fix the price today. Remember a few years ago when buyers found a house and were "urged" to make a full price offer because the agent "heard someone else was making an offer this morning?" In some cases it was true in may others it was not.

What if there was NO PRICE on the home listed for sale? What if ALL houses in the market were listed for bid, and it was up to the buyer to consider what to offer? Based on what? Comparable sales of course. Then the shift would be from the seller defining the market by virtue of their unilateral offer of sale at a relatively fixed price to one of an unfixed price that's determined by a "meeting of the minds." What a novel concept?

I know that opportunity already exists, but agents don't tell or promote the idea that sellers don't HAVE to take the list price - or any price for that matter.

Auctions in a Hot Market
Do you think sellers were best served by fixing list prices in the 2000 - 2005 period of house-flation? I could argue the case that it was a disservice to fix priced on listings at that time. What kind of market is it that the AVERAGE listing sells in less than 30 days?

Talk to appraisers. They'll tell you that the industry interpretation of a market in sync is one in which houses sell in 90 - 120 days. So, a less than 30 day market means sellers are NOT getting fair market value. Funny, the REALTOR organization has never mentioned that in their Press Releases as near as I can tell.

Wow! You mean to tell me that real estate agents aren't working in their clients best interests when they fix the price in a hot market? Yes I am, when the market average is less than 30 days - or even 60 days.

Auctions in a Slow Market
What now? It's no secret anymore. House prices are DOWN. In my neck of the woods they're down substantially and are projected to decline even more this year. So, fixing a price in this market should be a good thing in a "down" market. Not really. What if you actually wanted to sell? Most sellers that list their homes for sale in a down market actually do want to sell. They know the score. The internet reaches almost everybody today, and we still have newspapers and magazines that are especially ready to tout the latest market declines and foreclosure rates.

The problem in a declining market is that you never quite "catch up" to the rate of decline - especially if you list like rookie agents - a good portion of the bodies in the business. If you price your house 10% high in a down market and keep reducing it by the same percentage you never "catch up." You're always above the selling curve.

What to do?
Maybe, in a properly marketed and executed auction you're better off in either market. You see in hot markets or down markets and auction is a snapshot in time of desirability, so theoretically and auction may be the way to go to sell in most situations.

Theoretically that may be so, but then again there's the real world. What constitutes effective and adequate marketing to get people to the auction? Who can determine that? BUT, if you had a "Make Me Move" price already pre-defined that is invariably high in most cases for the "unmotivated," but would be set lower by the more "motivated,"you just might have a new pricing model that works for everyone.

Chris Michaud
chris@acceptancegroup.com
www.acceptancegroup.com