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Google invests $50M in Auction.com: good for Google, bad for consumers?

(Tech News) Auction.com has recently seen a fat cash infusion from Google, and both seek to revolutionize real estate. Again. But who really benefits from this investment, and is it at the cost of consumers?

auction.com

auction.com

Google Capital Invests Big Bucks in Auction.com

The online real estate auction site, Auction.com, landed a monstrous investment from Google Capital. In a press release on the Auction.com website, the largest online auction site for buying a selling homes announced that Google Capital invested $50 million dollars in their Irvine, California-based company.

According to the Jeff Frieden, CEO and Co-Founder of Auction.com, “Google is the world’s greatest Internet company and we’re thrilled to have the opportunity to work closely with them. This will give us an opportunity to tap into their deep expertise in digital marketing and mobile, as well as in building world-class products.”

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In speaking about their decision to extend funding, Google Capital Partner David Lawee is equally enthusiastic. He states, “We think Auction.com can fundamentally change how real estate, and particularly commercial real estate, can be bought and sold, leveling the playing field for smaller investors.”

Since Google is widely recognized as a forward-thinking business leader, one might want to take stock in their decision to back such a company.

Real Estate Consumers and Professionals May Want to Take a Second Look

While this cash infusion may lead to some fundamental changes in how real estate is bought and sold, Auction.com currently has some noteworthy practices.

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Nationstar Mortgage Short Sales

One of the largest contributors of properties to the Auction.com website is Nationstar Mortgage. Nationstar requires borrowers who want to sell their homes as short sales to auction those properties through the Auction.com website, and this process is not without its criticism.

For one, the Nationstar/Auction.com process is a little bit disjointed. A real estate agent lists a property, obtains an offer, and submits the paperwork (including the fully executed purchase contract) to Nationstar. Nationstar then requires the property to be listed on the Auction.com website, and the bidding on this property is now open to the public.

Many agents complain that this process completely ignores the existing purchase contract between buyer and seller. Given the fact that the seller (not the bank) is the rightful owner until the property, it is the seller who should determine the best purchase offer on the property. The existing contract should not be ignored.

Auction.com Surcharge

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Another hot button issue for consumers is that Auction.com requires a surcharge when you purchase a property through their site. For some properties, the surcharge is $2500. But, for those short sale properties that came via Nationstar bank, the surcharge is 5 percent. So, if you bid $250,000 for a property listed on the site, your total purchase (excluding settlement fees) could be $262,500. In effect, homebuyers may end up overpaying for a property.

Possible Price Inflation

Most consumers have the impression that an “auction” begets a deal. In some instances, that may be the case. However, in an auction, people bid against one another and that raises the price, often even causing a buying frenzy, which clearly works to the benefit of the seller.

Elizabeth Story, a San Diego County Realtor® at Allison James Estates & Homes, points out the following unfair consumer practice: “Auction.com’s properties listed for sale have unpublished reserves that allow the seller to decline the transaction, even if you are the winning bidder. In order to encourage bidding up to the unpublished reserve, Auction.com will bid against buyers in its own auctions.” It’s true that Auction.com does not publish their reserve amounts on their site, unlike other sites (such as ebay) where the reserve is visible to the consumer.

But, unlike other auction sites, Auction.com does actually reserve the right to bid against the consumer. In their Reserve Auction Terms and Conditions, Auction.com states, “The starting bid is not the Reserve Price. Except where prohibited by law, during a live bidding event (online or otherwise) the Auctioneer may open bidding on any Property by placing a bid on behalf of the Seller and may further bid on behalf of the Seller up to the amount of the Reserve Price by placing successive or consecutive bids for a Property, or by placing bids in response to other bidders.”

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Homebuyers need to understand that the Auctioneer may be bidding against them and, as a result, inflating the price paid to the property to their own benefit and the benefit of the seller.

Online Bidding May Benefit Sellers

The truth is that the online bidding process may also benefit those home sellers that list their homes for sale on the site. In situations of properties where there has been limited interest at the local level through common real estate advertising practices, sellers may be able to increase their buying pools. In the example of luxury homes valued in the millions of dollars, widening the buying pool could possibly lead to a quicker closing.

Thinking of buying a home on Auction.com? Think that if it’s good for Google, it’s good for me? “It’s important to know the facts,” Story says. “Buyers need to know that they are not shortchanging themselves.”

It’s true that the online real estate auction site may have some good features, but as always… caveat emptor!

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Written By

Melissa Zavala is the Broker/Owner of Broadpoint Properties and Head Honcho of Short Sale Expeditor®, and Chief Executive Officer of Transaction 911. Before landing in real estate, she had careers in education and publishing. Most recently, she has been able to use her teaching and organizational skills while traveling the world over—dispelling myths about the distressed property market, engaging and motivating real estate agents, and sharing her passion for real estate. When she isn’t speaking or writing, Melissa enjoys practicing yoga, walking the dog, and vacationing at beach resorts.

8 Comments

8 Comments

  1. Missy Caulk

    March 10, 2014 at 12:15 pm

    Thanks Melissa, I tried to use it for myself for a condo in TN. I sat there and watched the bids go up. The scary part of your post is that they can bid up the price. There was a discussion on FB about this a few days ago and most folks said the paper work was horrendous. Makes me concerned for the consumers.

  2. Nick Fisherman

    March 11, 2014 at 1:00 pm

    I am a 26 year old bachelor with no kids. I have no current plans to buy a home. But, my philosophy has pretty much always been “if it’s Google, it’s better.” Apparently, that is no longer valid. Thank you so much for this enlightening article. I will stay away from Auction.com.

  3. Chris Wilkenson

    March 11, 2014 at 2:51 pm

    In theory, if the seller’s reserve is not met by the market, then the
    seller will not sell the property. That same concept holds true on ebay,
    where there is a reserve and if it’s not met then the product doesn’t
    sell. So what’s the difference is the seller bids up to the reserve or
    doesn’t? The same theoretical framework holds true. I feel this article
    is a misinformed, judgmental piece based on analogous insight that’s not
    actual validated through a conceptual framework. Stay away from
    publishing such opinion with such assertion and matter-of-fact
    confidence.

    • Kumar

      April 11, 2014 at 1:14 pm

      What if the buyer made the last bid (which was inflated by auction.com) and puts it over the reserve price?

  4. Maryann Little

    March 11, 2014 at 4:27 pm

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