One of the participants at last week’s PPW conference in New York was Rick Sharga - the Executive VP of Auction.com. His participation could be judged to be the surprise of the conference as I suspect not many of the other attendees or in fact many readers would know much about this Irvine CA based business.
Auction.com was founded in 2007 and in that time has become the leading online real estate marketplace selling over 100,000 properties to a value of $26 billion in that time.
The business model is simple and yet highly effective; leveraging more of the service solution of fine art auctions than property auctions. Their model is a buyer paid commission service. Focused originally around distressed home sales the service has expanded to service the full spectrum of both residential and commercial real estate. Proven by their recent record price sale of a $73.2 million commercial building in California.
The company takes listings as auctions from any client: agent, developer or owner and markets the subject property through portals as a licensed broker. The company holds a Brokers license in 48 states across the US. They also provide a concierge service to facilitate viewings on behalf of clients for prospective buyers.
The process of the auction begins with the establishment of a reserve price and an indicative price to power the search tool and establish an indicative display price which is well below the reserve price. The auction date and time is set. As the auctions are buyer-commission based it allows the company to screen bidders as pre-registration is mandatory and a credit card authorisation is taken scaled to the price of the property.
The actual auction operates much like any other online auction with interestingly the same ‘last-minute’ rush of bids and just like consumer auctions the bidding is auto-extended if a bid is made in the last 5 minutes. Bidders can see how many bids have been made and the value of those bids but not how many bidders there are. Clearance rates vary based on the quality of the property and the reserve price but can be up top 70%.
The commission is a flat 5% payable by the buyer - no charge to the seller making this a very interesting model. The typical property sold by Auction.com at this time in terms of residential is around a price of $100k to $150k demonstrating the service value to the distressed inventory market and for commercial around $10m to $20m.
The company is certainly well established and has a proven business model, within the US property market which for residential is estimated at $1 trillion per anum the company is a minnow with less than 1% but with a 5% commission rate and an online structure its got to be worth examining.
Probably of shorter term interest could be existing horizontal players such as Trade Me in New Zealand that has a well understood and established consumer auction platform and a very successful property portal. Ebay truly meets real estate - an interesting thought!