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Blog 2: HGTV’s Flip or Flop Auctions

https://www.thelist.com/31486/untold-truth-flip-flop/

This article focuses on the show Flip or Flop, a reality television series on HGTV. Tarek and Christina El Moussa are former real estate agents who decided to switch jobs and buy distressed properties through auctions. After purchasing the houses, they remodel them and try to sell them at a profit. The process begins with a cash purchase at auction of a home, sometimes without seeing the property, then the fixing process, and ending with the anticipation to see if there will be a buyer and profit. Doing more research on the show, I discovered that they have never actually flopped, which means losing money on a flip. They also flip more than one house at a time and have sacrificed a lot before making it to the big screen. In addition, the couple recently filed for divorce, but they will continue to be business partners together on the show as Tarek acts as the contractor/auctioneer and Christina is the designer.

 

The real estate auctions featured on the show are not staged. They must have cashier checks to buy cash, and sometimes they get outbid. Using what I learned in class, I am able to understand that this show uses an ascending bid auction and often has bidding wars. Ascending bid auction are carried out interactively in real time, with bidders physically present. The seller gradually raises the price, and bidders drop out until finally only one bidder remains, and that bidder wins the house at this final price. In the case of this show, there are oral auctions in which bidders shout out prices, or submit them electronically. The dominant strategy is to stay in until your true value is reached. The winner will be whoever has the highest price for the item. However, since everyone drops out immediately after their price is reached, the winner will pay approximately the same amount as the second person’s. So, then the winner is the one for whom the item has the most value, but they only pay the a little bit more or the same as the second highest value in order to outbid the second highest bidder. In Flip or Flop, Tarek and Christina get cash from investors to bid on the houses and they have a dominant true value for each house that they believe will bring them profit after the remodel is complete.

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