Over the last twenty years, online transactions have gone from few and far between to absolutely ubiquitous. Though consumers were once suspicious of digital transactions, today, everything from grocery orders to high-value property acquisitions occur online.
Writing for Wired, Marc Summe noted that online transactions began their steady climb “thanks to advancements in digital payments technology, demographic shifts, and the evolving cyber-security landscape.” Last year, the COVID-19 pandemic accelerated this trend. During the pandemic, our entire lives moved online, and our culture shifted to accept remote work, online schooling, and e-commerce as the new normal. Consumer trust in online transactions — which has grown slowly over the last ten years — skyrocketed during this time.
Referencing a recent Mastercard survey of eighteen markets around the world in a July 2021 article for CNBC, Sumathi Bala noted that a majority of respondents “were willing to consider emerging payment methods such as ‘digital or mobile wallets, QR codes and even cryptocurrencies.’” In fact, 90% of those surveyed had “tried at least one emerging payment type in the last year,” with two thirds trying these methods for the very first time in 2020.
Clearly, sentiment surrounding online activities has changed significantly over the last eighteen months, and this attitude adjustment has extended to the online auction space. While organizations like Crexi were branching out into the online auction space years prior, the pandemic accelerated the transition of many other auction companies’ move to online operations.
While some assumed the pandemic would cripple auction sales, the opposite has proven true. Fine art auction houses like Christie’s and Sotheby’s made impressive sales and boosted engagement, while real estate consultancies like Lambert Smith Hampton and Strattons did the same.
Today, online auctions offer bidders greater control and transparency while providing sellers more effective marketing tactics and a broader reach. To learn more about the evolving landscape and changing sentiment about online real estate auctions, follow below.
Dispelling the Stigma Surrounding Real Estate Auctions
Real estate auctions have been commonplace in countries around the world for centuries. While nations like Australia and New Zealand have held real estate auctions without issue for decades, stigma surrounded such auctions in the United States until very recently.
Real estate auctions became more common in the US after the housing crisis of 2008, as platforms emerged to auction bank-owned properties online. Most of these auctions were conducted on behalf of banks that wanted to quickly offload properties seized due to bankruptcy or foreclosure. Most distressed properties placed at auction during this time sold well below their market value, leading to a stigma around real estate auction.
Attitudes Surrounding Real Estate Auctions Begin to Change After the Financial Crisis
In 2016, the perception of real estate auctions changed as Americans became more educated about the auction process and its advantages. Buyers realized that properties were often placed at auction for reasons other than bankruptcy, foreclosure, or other negative connotations. As a recent Forbes article notes, real estate online auctions, in particular, make sense because “they offer a transparent means to purchase real estate compared to [traditionally] opaque processes.”
Innovative Approaches to Online Auctions Increase Engagement
Though many anticipated declining sales and interest, online auctions have been surprisingly successful for companies like Sotheby’s and Christie’s. Crexi’s auction platform, as of this writing, has hosted more than $1B in commercial property value since 2019 alone.
Thanks to ease of use and engaging participation tactics, online auctions have not just attracted thousands of new viewers to companies like Sotheby’s and Crexi; they have also attracted new buyers to their respective sectors. According to Christie’s chief executive Guillaume Cerutti, “about 35% of buyers [in 2020] were new to purchasing at [Christie’s], with much of the growth coming from online sales.”
This is because, notes Tim Loos for The New York Times, technological improvements in online auctions have been mainly focused “on the front end of the process.” Marketing based on data sharing might be where the true potential of online auctions — from fine art to real estate — lies.
Efficacy of Online Real Estate Auctions
In her article “How Technology and Covid Changed Auctions Forever,” Julia Cahill notes London-based property advisory firm Strettons brought in £16m during a single online auction in September 2020. This auction represented Strettons’ biggest sale since March 2008. For auctioneers, “the ability to hold online auctions at speed, without constricting the timelines of vendors, opens up unlimited possibilities.” Today, luxury commercial and residential properties are often sold through online auctions — especially those without recent comps.
Benefits of Online Real Estate Auctions for Buyers
Buyers benefit from online real estate auctions by securing access to vast amounts of data they would otherwise be unable to aggregate. They also benefit from a fast, increasingly transparent process that is heavily regulated to ensure payment security and buyer protection.
In her article “Transaction Transformation” for Forbes, Michele Lerner notes that “with the commercial real estate industry’s shift to digital underway, transactions are becoming swifter and simpler for everyone involved.” Advancements in proptech have made online auctions increasingly reliable and desirable for buyers in particular.
When purchasing commercial real estate in more traditional ways, buyers often “spend weeks on comparative market analysis…including a review of financial statements, capital improvements, rent rules, and tenant profiles.” However, when they register for online auctions, buyers “benefit from vast data about lucrative investment opportunities in markets outside their region” so they can easily make “educated decisions” about properties under consideration.
Benefits of Real Estate Auctions for Sellers
Once stigmatized, real estate auctions now enjoy a certain cachet. For example, the sellers of a 156-acre historic Mallorcan estate recently noted the sellers had chosen to auction the property because a masterpiece like “‘a Picasso or a Van Gogh is not sold in an art gallery but at auction.’” Unique properties such as these, especially those without comps, have historically been difficult to price, market, and sell. Sellers today choose auctions for the short timeline they offer and the positive buzz they create around these unique properties.
According to Michele Lerner in her article “Transaction Transformation” for Forbes, “sellers get their property sold and closed twice as fast, and brokers get paid twice as fast in an online transaction.” Sales that once “took six to eight months can now wrap up in 90 to 100 days,” if not faster. Crexi’s auction platform’s typical list-to-close span is 80 days, and the facility of online auctions is only ramping up its timeline.
In short, writes Michael Kaminer in a September 2021 article for Mansion Global, “for sellers at the market’s top end, [real estate auctions] offer clear advantages.” Kaminer notes that “there is a linear time frame with a clear, defined end date,” sellers enjoy a multitude of offers, and enjoy “the transparency of not having to negotiate.”
Final Thoughts on Online Real Estate Auctions in the US and Abroad
Though online real estate auctions emerged during the financial crisis under the stigma of bankruptcy and foreclosure, the process has since evolved to include high-value assets. These properties perform exceptionally well in online auctions due to the enhanced international reach and the growing availability of aggregated data made possible by advancements in proptech.
Improvements in cybersecurity have also eliminated fears once held by institutional investors about moving large amounts of money around online. As our world moves increasingly online post-COVID, virtual auctions of high-value assets are likely to garner even more public interest and support.