Real estate auction industry: The rise of an underdog

Posted by Rapti Gupta on Mar 27, 2014 11:44 AM EDT
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For a long time, the auction industry was only considered a fix to relieve the market of distressed or unwanted properties. This is no longer the case. (Photo : Reuters)

This article has been updated to note a change. 

The dark clouds of the 2008 housing market crash came with one silver lining: the auction market. The sector was a saving grace during the recession as scores of foreclosed properties came up on the market and were auctioned off to push down prices and demand.

For a long time, the auction industry was only considered a fix to relieve the market of distressed or unwanted properties. This is no longer the case.

In the wake of a steady property market recovery, real estate auctions have stepped confidently into the limelight. Last December, Rick Sharga, executive vice president of Auction.com, told The Wall Street Journal there has been a 120 percent increase in the number of properties sold via the auction method compared with five years ago.

The statistics all point to the same answer - there is an immense interest in the auction industry. What's more, the surge in demand is not only from within the segment, but from other external sectors as well, as seen in Google's recent investment in Auction.com.

"Google is a very smart and disciplined company which may have a multitude of reasons for investing in the online auction industry," Shawn Terrel, vice president of United Country Auction Services, the leading rural auction agency of the United States, told Realty Today of the venture in an email.

"Google's ability to obtain direct auction sales data, could become a very important piece of the equation," he added. "It will be interesting to see how they interact with their recent investment, but from the outside looking in I believe Google's investment in Auction.com is a very positive sign that the real estate industry is being noticed and that United Country Real Estate will continue to have a very bright future as we continue to build and be dominate in the sectors of the real estate information and marketing spaces we serve."

Industry players

With the goal of leading the auction industry, UCAS, the auction division of United Country Real Estate, one of the leading property agencies, built an intensive auction service framework just within a span of seven years. Today, the division accounts for 20 percent of annual sales, including more than $500 million in 2012 alone - a feat that earned it the top place on Land Report's list of "America's Top Auction Houses" the following year. 

Auction.com reports that it sold more than $7 billion worth of residential and commercial property in 2013. Meanwhile, Concierge Auctions has sold more than $500 million worth of luxury properties since 2008. More recently, the company tried - and failed - to sell the Highland Park estate of basketball legend Michael Jordan.

Technological revolution

At the crux of all of this is ever-improving technology, which Terrel considers the major change-driver and trend-setter of the auction industry.

"The amount of growth and development of auction technology has allowed consumers to become mobile yet still connected," he said.

"Internet auction bidding platforms provide that [instant buying and selling] mechanism to consumers allowing them to participate in auction events from virtually anywhere at any time. The United Country Real Estate and our Online Auction bidding platform receives between 5-7 million visitors collectively each month, which is setting the industry standard," he added.

Currently, there are several real estate auction apps available for Android, iOS and Windows platforms. Auction.com has its own iPhone app, as does UCAS. In both instances, the apps allow people to check out listed for-auction properties in addition to real-time bidding and pre-bidding.

Looking forward

Despite the drastic technological transformation, Terrel believes the auction industry has a long way to go, even as he remains confident that it will become one of the strongest tools of real estate marketing in the near future.

"I believe we will see a much stronger majority of residential and commercial real estate in this country being offered to the public, via the auction method of marketing in the foreseeable future," he said.

Soon, he says, real estate data will become more indispensable than the inventory itself. He explains that any casual activity could be used to feed a customer the kind of property he or she may be looking to buy. For example, if someone buys golf equipment worth $500, there is a possibility that he or she will be interested in a golf course or a property near one.

Before auctions can reach their full potential, however, there is still a dire need for realtor training and blending technology into the industry, Terrel notes. There are very few people who are appropriately trained and specialized in the field, which still has an imbalanced realtor-to-auctioneer ratio. According to Terrel, there are more than 1 million realtors (NAR 2013) in the United States, versus just 30,000 auctioneers.

Terrel recognizes realtor training as one of the major hurdles for the industry.

"Realtors are going to launch the auction offering into their traditional real estate business eventually and I believe it could seriously impact the auction industry negatively, if we do not help realtors get started off on the right foot with proper education and training," he explains.

The new normal?

A January report released by Birchwood Credit Inc. stated that the number of auctions in January 2014 went up 75.10 percent in Chicago compared with the year before - a 28.41 percent increase on a year-over-year basis for a previously marginalized field.

According to the Realtor Magazine, the demand for private owner auction sales outpaced foreclosure auction sales in 2012. In the mean time, the number of people opting for the auction sales method has increased exponentially - so much so that companies have become increasingly picky. According to The Wall Street Journal, Concierge Auctions only accepts one out of every 25 auction applications it receives.

Terrel is convinced this isn't just a fluke.

"The importance of auctions in the real estate marketplace," he said, "is that they will eventually become the primary method of selling property."

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