New Spin on Foreclosure Auctions
Site uses daily price reductions to woo buyers
by Steve Bergsman
I’m always a sucker for the next good idea, and the single-family residential market could use a good idea.
With more than 3.6 million homes on the market as of third-quarter 2009, perhaps someone could invent a way to sell more of those homes and stabilize the supply-demand equation.
Jim Hodson and Dan Connell certainly haven’t built the automatic sell-a-home machine, or even topped the time machine on “The Rocky and Bullwinkle Show” cartoon, which could return us to a point before the subprime mortgage crisis tipped the country into a recession … but they did create and are now putting to market one of the more unique concepts to help move foreclosed homes quicker.
It’s an Internet-based technology that takes the online auction concept and twists the scope slightly for a time-limited, open-market bidding system for foreclosed single-family residences. At first glance, Countdowntobuy.com’s methodology operates in a similar manner to other Internet auction technology such as eBay, but once you get into the site the differences are very apparent.
The biggest change is that once the estimated value of a foreclosed home is established, the price is reduced 1 percent a day for 30 days until the property is sold or reaches the bottom price at which the property could be transacted.
The whole process is automated so there are no messy negotiations. And unlike on eBay, the whole bidding war does not come down to the last 60 seconds.
Here’s a quick overview of how it works: A foreclosed property has an estimated value of $750,000. It goes to market on Countdowntobuy.com at $800,000 (usually listed slightly above estimated value so the bank has a little time to capture higher market value if there is demand out there).
For 10 days it is listed on the site for $800,000 and if there are no takers the site will drop the price 1 percent (of the estimated market value, or EMV) each day for 30 days. So after the first day, the price drops $7,500 (1 percent of $750,000). If there are no bidders at that price, it declines the next day another $7,500 and on and on until a bid matches or is bigger than the current day’s pricing.
As a buyer, you might think that property is worth just $710,000, so you put that bid in. The site will record your bid and tell you how many other people are bidding, but their prices are not disclosed. As the price is ticking down day by day, you might get nervous, thinking the other bidders put in prices higher than you, so you offer a new bid at $720,000.
Basically, a buyer submits a sealed offer anywhere within the established offer range and can adjust the offer daily.
If you’re not following any of what I just explained, no worries. The Web site has nifty little graphics that do a good job of illustrating the bid process.
Will this better idea work? Who knows? When I saw the Web site, it was in its beta stage. But, I liked the concept enough that I spoke with Dan Connell, president of Countdown To Buy.
“The concept was Jim Hodson’s idea,” Connell explains. “He lives in Connecticut, and there was a house not far from his home that wasn’t selling and he couldn’t figure out why. So, he came up with a methodology that would let the market determine price in what he thought was an efficient and objective manner.”
Connell went to an investor presentation during an early round of fundraising and thought it such a compelling idea that he voted two thumbs up by not only investing in the new company but signing on as president.
The infrastructure of the Web site does a couple of things. First, it houses property information — everything from photography, multiple listing service information and other content management “that we provide and aggregate,” says Connell.
Since this is a site dedicated to foreclosed properties, its initial success would depend on establishing relationships with such institutions as banks, servicers and even hedge funds that might have an inventory of REO (bank-owned) and foreclosed properties.
When I spoke to Connell, the site wasn’t officially opened yet and he was just establishing his first tie-in with a bank that was going to list properties on the site.
“A lot of our model is built around not just getting one home listed from an individual city, but getting 50,” says Connell, because the site provides property-specific information such as a full appraisal and a tremendous amount of additional content such as qualitative information about the surrounding area.
“When you’re buying a house there should be no surprises,” says Connell. “Our properties are examined up front by industry professionals, and relevant information such as an appraisal and property condition are posted to help evaluate the site.”
The key, however, to making the site work, is the automated pricing process through a regular declination and the automated negotiation. Once an offer meets or exceeds that existing day’s price, it is automatically matched, the buyer is notified, and the contract is set.
“We have been categorized as an auction site,” Connell says, “but we see ourselves as an alternative disposition site. The reason I say that is not because our process isn’t a type of auction, but we are very different in the real estate world as to the usual property auction process.”
It seems to be an eBay world out there. Countdowntobuy.com is not quite the same thing, but one can certainly get the same jolt of euphoria when coming up with a winning bid, whether it’s for a trinket, a collectible or a new home.
Steve Bergsman is a freelance writer in Arizona and author of several books, including “After the Fall: Opportunities and Strategies for Real Estate Investing in the Coming Decade.”
Find out more at www.joinaaoa.org.
To subscribe to our blog, click here.