Real estate auctions

 Peter Cramton points me to this article in the Orange County Register, about a real estate auction with a soft close, that ran for several months.

How ‘soft’ auction added $33million to price for Orange County County icon By Jonathan Lansner

"The federal government’s exit from the eye-catching Chet Holifield Federal Building – better known as the “Ziggurat” – began June 5. The initial auction deadline for the building plus 89 acres in Laguna Niguel was July 31, but it came with a big “but” in the rules.

"You see, this auction run by the General Services Administration has a “soft close” – if the high price is topped in a 24-hour period, the auction is extended for another 24 hours.

"And on July 31 – and for every business day through Friday, Oct. 4 – that extra bidding threshold was met. 

"Consider the math of this curious auction technique: On July 31, the first deadline, the Ziggurat price tag was $136.8 million. The 46 added days of bidding increased that to $169.6 million as of Friday.

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"Cramton wonders why auctions of any style aren’t more widely used to sell all sorts of residential housing nationwide. He sees them as fast and efficient ways to maximize pricing.

"Yet, auctions are typically used only to sell US homes with financially distressed ownership.

"“We don’t need thousands of real estate agents,” the professor says."

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He further says: "There are 1.6 million real estate agents in the US and 434,661 in California (including brokers)."

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The WSJ has this story on real estate auctions:

"The Wealthy Are Overpricing Their Homes. Auctions Show Just How Much. Desperate to sell, more rich homeowners are turning to the auction market—but the results aren’t always what they bargained for.  By Katherine Clarke  and E.B. Solomont, Oct. 30, 2024 

"More closely associated with pricey art or collectibles, auctions are on the rise for luxury real estate, with auction houses reporting a dramatic spike in the number of high-net-worth sellers seeking their services since 2020. Amid a slowdown in luxury home sales, auction companies are pitching homeowners on their ability to market unique properties to a range of deep-pocketed buyers beyond local markets and to sell them within a precise time frame.

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"Auctions tend to attract the real-estate world’s white elephants—properties that may be quirky, highly-personalized or ultraluxury, resort-style homes in neighborhoods where that type of housing is atypical.

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"Whether there’s a reserve price or not, Concierge takes a 12% to 15% buyer’s premium as a commission, plus there are agent fees. It markets the property heavily before the auction, and tries to generate early offers by offering prospective buyers a “starting bid incentive,” or 50% discount on the buyer’s premium if they submit a winning bid before the start of the auction."

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Peter C. emails the following comment (since comments on the blog are closed):

"Real estate norms vary by country. In Norway and Australia, auctions are the norm. In the US, transactions are brokered, sometimes aided by an auction process. In all countries, residential and commercial real estate transactions would be improved with a better market design that emphasizes transparency and efficiency as goals in solving real estate's economic problems. Market design research on real estate is needed."

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*I enjoyed comments when I allowed them, but closed them because each morning I had to delete spam comments advertising bogus kidney purchases and sales...:(