Auctions in the Distressed Real Estate Industry
https://www.auction.com
Ten-X is a Limited Liability Company that is revolutionizing the way that auctions occur for distressed real estate. They are a startup company from Orange County, CA that has recently been acquired at a majority stake by a private equity company. The service that they perform is providing an online platform for the sale of foreclosed property. They believe that the current system that is in place is inefficient both for the buyer and the seller. The seller can be making more money by listing the property online and being exposed to more buyers as opposed to an in person auction which is the current system in place. The system of an online auction also promotes transparency of the process. Buyers are seeing real time updates on a single platform as well as equal access to necessary information that could determine if you want to participate in the auction. This eliminates the possibility of collusion which is a common practice among foreclosure auctions as the traditional way is in person. Overall, this company aims to better the practice of sales of foreclosed properties for all parties involved.
The work that this company is doing is very relative to the course. The type of auction that they do is an ascending bid auction online, meaning that the auction is live with people all over the world bidding at the same time via the internet. By having such a large audience of buyers, the seller has a better chance of receiving bids that describe the true value of the property. Many people buy foreclosed properties with the intension of reselling, which relates to the equation: vi = v + xi, where vi is the estimated value, v is the true value, and xi is a number representing the error in the estimate of vi. Buyers must estimate the value that the property is worth and buy at a price that they can make money from reselling. People who bid on these foreclosed homes also assume the risk of the winner’s curse, with vi representing a potential overestimate and loss of money when trying to resell. Not all buyers take the possibility of overestimation into account when buying properties and end up losing money. The seller also has an option to include a reserve price, which is the lowest price that they are willing to accept on the sale of their property. It will be interesting to see if Ten-X continues its success in the foreclosure property industry and continues to apply concepts from class to their business model.