Online Real Estate Auctions Boast 90 Days to Close

In a market where uncertainty rules, finding a buyer with the cash to pull the trigger and closing the deal fast are top priorities.

Online auction platforms only handle about 1% of the annual CRE sales transaction volume, but recent activity—hotels are flipping like hot cakes in digital auctions—signals that auction platforms are ready for prime time.

“The market is still in the early adopter phase for online auctions, but we’re now at an inflection point,” Ten-X CEO Steve Jacobs told Globe St. “The auctions sector is poised [for] mainstream adoption. Particularly in the current [economy], where speed and certainty are paramount to getting deals done.”

Ten-X is the busiest auction platform in terms of frequency. According to the company, it holds auctions every other week—auctions are open for 48 hours and bidders can bid as often as they like—with a trade rate of 60%. In business for 13 years, Ten-X has hosted more than 10,000 transactions, with an average liquidity pool per auction of more than $1B.

CoStar Group acquired Ten-X in 2020, hooking it up to the CoStar and LoopNet platforms. Ten-X has leveraged CoStar data to reach and target buyers globally; the platform also counts 6,400 brokers as clients.

The wave of hotel trades during and after the pandemic has fueled auction activity at Ten-X. Since 2019, the platform has auctioned 504 hotel properties worth a total of $2.7B, including a transaction last year involving an $80M Starwood portfolio.

Jacobs wants everyone to know that liquidations and sales of distressed properties only represents about 20% of the assets on the platform.

“It’s a misperception that auctions are only for distressed properties. While that may have been the case in the distant past, the reverse is now true. 80% of the properties on Ten-X are core or value-added properties,” Jacobs said.

What the platform sells is speed: an average list to close of about 90 days—CoStar data says the CRE industry average in January was 192 days.

“Properties listed on Ten-X consistently close twice as fast and at twice the rate as the offline market,” Jacobs said. “This has attracted an influx of institutional owners and investors on our platform, now about half of the volume.”

Due diligence is conducted by Ten-X before offers are made, not after the property is under contract. Underwriting is done before auction day and all transactions are non-contingent sales with a 30-45 day close. There are no re-trades and there is no negotiation of terms after the auction closes, which Jacobs told us provides sellers with “certainty of the transaction.”

However, since defaults by winning bidders are known to happen, Ten-X solidified its closing batting average by engineering an automated “backup buyer” into the auction process if the winning bidder fails to close the deal.

In every property transaction on the platform, two contracts go out from the system automatically—one to the winning buyer and another to the backup buyer, the person who had the second-highest bid (provided they are within 10% of the winning bid price).

If the winner defaults, the backup buyer can purchase the property with the same terms and price as the winning bidder, Jacobs told us. The backup buyer and seller can choose to sign or not sign the sale agreement, he added.

Ten-X charges a transaction fee, which is paid by the buyer. This fee is a percentage on a sliding scale based on the purchase price of the property, Jacobs told us. The higher the purchase price, the lower the percentage.