Real Estate Auction Platforms Aren’t the Answer
Real Estate Auction Platforms Aren’t the Answer
Bidding wars turn otherwise rational negotiations into all-out wallet fights.
Batterymarch Insider
Batterymarch Group LLC is a full service independent real estate brokerage firm specializing in the downtown Boston market. More about our services here. “The Batterymarch Insider” is a brief snapshot of our current market thinking. These are our opinions, so take them with a grain of salt. As always, our “terms of use” apply. We encourage you to subscribe.
Real Estate Auction Platforms Aren’t the Answer
The real estate brokerage anti-trust settlement is throwing the commission game into a full-blown tailspin. Shakeups like this inevitably lead to innovation - someone will figure out a better mouse trap. A firm called Final Offer wants to transform the real estate buying process. In our opinion, this service magnifies what’s wrong with the industry and it protects the high-cost status quo.
A Difference Without a Distinction
At the risk of oversimplifying, Final Offer works something like this. Properties are listed as usual in a local Multiple Listing Service. That listing data is mirrored on the Final Offer platform. The marketing process for the property is the same as any other listing - open houses, showings, etc. But Final Offer participating listing brokers will direct potential buyers to the Final Offer website to submit bids for the property.
Potential bidders must register and submit their bids on the Final Offer platform (which can only be done through a licensed sales agent). The seller and their sales agent review bids received and can accept an offer or make a counteroffer via the platform.
What’s different from the traditional process is that other Final Offer bidders, and the general public, can see your bid in real time. Well… sort of. Sellers have the option to filter what bids are visible. In other words, if a seller gets a low-ball bid, they can hide that bid.
There are other nuances. The system will assign values to the buyer’s terms. It’s very basic stuff, like a closing in six weeks is worth more than a closing in six months. The company also claims that sellers can be more specific as to the terms that they would be willing to accept.
These bells and whistles feel gimmicky to us. If a listing agent can’t intuitively review multiple offers and quickly articulate which offer is best for their client, then you’re dealing with someone who is completely incompetent. You don’t need an algorithm to figure these things out. Additionally, sellers can get as detailed as they want regarding what terms they’re looking for on existing MLS platforms.
Negotiated Market vs Auction Market
On the Final Offer platform, buyers basically agree to advertise to other buyers what they’re willing to pay for a targeted property. Buyers are effectively inviting others to join them in a bidding war.
The worst thing that can happen to a buyer in the buying process is getting tangled up in a bidding war. Bidding wars turn otherwise rational negotiations into all-out wallet fights. Sales agents love bidding wars because buyers tend to throw all caution to the wind with respect to valuation. In the heat of the bidding, buyers often waive important things like property inspections and will accelerate closings – agents get paid quicker.
About a year ago, we reached out to Final Offer and asked their spokesman, “How is this not considered an auction platform?” The spokesman vigorously denied that it was an auction platform. When we made the point that it sounded like they may need an auction license from the State, there was a very long pause, and the representative said, “well, we actually have an auction license.”
We recently checked back with Final Offer on this point. They confirmed that they did have an auction license last year, but they’ve determined that they’re no longer required to have that license, so it was dropped. (Note – Massachusetts regulates in-person auctions, not online auctions, so they probably don’t need an auction license in Massachusetts.)
In the most basic sense, an auction is a process of selling or buying goods by inviting competing bids from multiple bidders. By our way of thinking, that’s what the Final Offer platform is all about. If it walks like a duck, quacks like a duck, and they have had an auction license – it’s probably an auction platform.
The Wrong Kind of Transparency
Final Offer’s marketing mantra is “transparency leads to better outcomes” – it’s hard to argue with that when it comes to real estate brokerage. The problem we see is that Final Offer makes the one thing that should be confidential transparent. In our opinion, forcing buyers to advertise to the world what they’re willing to pay for a property is contrary to the buyer’s best interest.
Additionally, if Final Offer is genuinely about a more efficient way of buying and selling property, there should be a meaningful cost savings to both buyers and sellers. That’s not the case. Since the platform requires buyers and sellers to use traditional sales agents, one can expect to pay full commission.
We could go on and on about other concerns, like uploading sensitive personal and financial data onto a third-party website. More troubling is that some of this data may be sold. Who wants to read, or pay an attorney to read, 20 pages of terms and conditions? We think you get the point.
We strongly advise our clients to avoid using these kinds of platforms. Importantly, don’t let anyone tell you that you’re required to use them. Brokers and their sales agents in Massachusetts are required to present ALL offers to sellers. If a listing agent is pushing Final Offer, make it clear that regardless of the format of your offer, you don’t want it published or shared with third parties – consult your attorney on this.
Final Offer may have benefits to sellers and to sales agents – but we fail to see any benefit to buyers. In fact, we see it as detrimental for buyers. It’s clear to us that Final Offer doesn’t want to be viewed as an auction site. For a company that professes to be about transparency, they seemed awfully cagey when we pressed them on that.
—————
About Batterymarch Group LLC – Batterymarch Group is an independent full service real estate brokerage and advisory firm focused on the downtown Boston high-end residential market. We represent buyers with a sharp focus on valuation. We also offer sub-advisory and owner’s representation services to financial institutions, family offices, and trustees.
About Andrew Haigney – A 25-year Wall Street veteran, Andrew held senior positions at leading global investment banking institutions where he routinely valued and negotiated complex securities transactions on behalf of institutional clients. Andrew has been an outspoken advocate of a universal fiduciary standard. In founding Batterymarch Group, Andrew brings that same discipline and passion to real estate brokerage.