As COVID-19 swept across the world, the industry of real estate took a major hit. Stay-at-home restrictions prevented realtors from showing homes, and the disruption in the economy created uncertainty for both home buyers and home sellers. Although the data is not yet in for the United States, it is apparent that COVID-19 caused a major decline in transaction velocity. More is known about the effects in the eastern hemisphere, where the virus first hit hard. Reports have indicated that transaction velocity in Asia was down 50% in the first eight weeks of 2020, with an 18% decline following in Europe.
Of course, open houses are off-limits, but sellers are trying to get creative. To deal with statewide limitations, some homeowners who were motivated to sell in the midst of the pandemic have turned to ulterior methods to identify potential buyers – they have turned to auction platforms.
Historically speaking, auction platforms have been viewed as a secondary market for homes that were exceptionally highly-priced and had been sitting on the market for an extended period of time. It has also been a platform popular among those with homes that carry unique features that make them difficult to sell. Auctions provide an avenue for owners to dispose of the asset – following a calculated decision, many feel that selling at an auction provides them access to buyers and assists them in relinquishing the expenses associated with the home such as maintenance, taxes, and mortgage payments.
However, the past decade has witnessed the development of new auction platforms, and they are changing the way we do real estate, specifically in the luxury home sector – and, in the midst of a pandemic, their popularity has amplified.
During the Pandemic
The west coast suffered deeply in the first wave of COVID-19 to hit the US, and some of the early changes in the real estate market are most apparent there. According to Ben Brady, regional director at Harcourts North America, a Southern-California-based auction house, ever since California governor Newsom issued a shelter-in-place order, the company has seen an increase in interest in the number of homeowners who want their property put on the market to be bid on virtually. He explains: “We’ve seen a lot of people simply take their property off the market which means they’re in a better financial position…But for those that still want to sell, we’ve seen a real spike in them moving away from the traditional approach.” He continues, “The word ‘auction’ in North America still carries with it the association of distress and foreclosure…It is actually a far superior process in a market where there are now limitations, both legally and health-wise.”
Brady is just one source sharing about how demand for auctions has increased. Since the start of the pandemic, companies across the country are sharing about the velocity that they have maintained during such challenging times. Decaro Auctions recently posted about their closings – a 3,720 square-foot waterfront estate in Merritt Island, Florida, and a 9,469 square-foot waterfront estate in Las Vegas, Nevada (situated on Lake Sahara).
A multitude of companies foresaw the move toward auctions, and they have prepared for this shift by developing platforms that allow homeowners to create a competitive atmosphere for the sale of a property. The process for most of these homes is simple: the date of the auction is set, giving potential buyers plenty of time to conduct their due diligence on the home. They can engage in an online virtual tour of the home, and, if they are very interested, they can schedule a private tour of the home (depending on local restrictions). Then, prior to engaging in the auction process, they are qualified by the auction company. At the time of the auction, participants can engage in online bidding for the residence from the comfort of their current home.
The industry is waking up to the benefits that selling at an auction offers as long as they can get past the negative associations they have with the process. Those benefits extend beyond facilitating a competitive atmosphere; a substantial, often unnoticed perk is the ability of the homeowner to avoid the ongoing costs associated with the home and instead to count on having cash in their pocket on a scheduled date. What’s more, the hassles and stress associated with home showing can be scheduled and reduced, preventing frustrations for the homeowners. Auction platforms can make the process easier for buyers, too! They can provide just as many benefits — for example, offering the buyer an atmosphere that guarantees them a chance to win an asset.
Analysts across the country agree on one thing: we are living in a time of incredible change – COVID-19 will be a turning point. There will be history books that identify pre-COVID and post-COVID eras, and the shifts in how our society functions will vary dramatically between the two. The way that business in many spheres is conducted will be restructured, for example, to accommodate the ongoing need for social distancing; however, the demand for transactions will continue to increase as the economy rebounds.
As unemployment soars and the markets bounce up and down, it can be easy to imagine that every corner of the economy has come to a screeching halt and that nobody has money to spend. That, however, is simply not the case, especially in real estate. Sellers must remember that many white-collar workers are still well-employed and may find that the pandemic offers them more buying power. According to Brent Robertson, DeCaro Auctions International Business Development Director, “Buyers are still out there, willing to see properties through virtual tours…It’s just a matter of making sure what we can do state-to-state, if they allow private showings or only virtual tours. Now, with the government restrictions slowly being lifted, it seems that auction platforms popularity will continue and provide avenues that were otherwise ignored by homeowners.”