On computer screens across the country, bidders sparred for boxer Evander Holyfield’s Georgia estate. The champ had lost his 109-room mansion when he failed to keep up the payments. So Holyfield’s property landed on the block last week at Auction.com.
Forty-four bids into last week’s auction, the clock kicked into final countdown mode. The offers had kept climbing through the afternoon: $3 million, $5 million, $6 million. $6.7 million. The screen flashed green with each new bid, resetting the clock 25 times. Finally, “GOING ONCE” and “GOING TWICE” appeared on the screen. “FINALIZING.” The high bid: $6.98 million. The heavyweight auction of Holyfield’s 12-bedroom, 21-bathroom home was just one of 80 auctions big and small under way that day at Auction.com’s Irvine, Calif., headquarters.
With $26 billion in property sales over the past six years, the company boasts that it has grown into the nation’s largest online real estate dealer. Co-founded by entrepreneurs Jeff Frieden and Rob Friedman, Auction.com caught the wave of bank-owned foreclosures during the recession and flourished while other real estate firms floundered.
On any given day, buyers can find 15,000 to 17,000 homes for sale on the site, with online auctions silently ticking off on computer screens around the globe.
The company employs more than 1,000 people in California, Texas, Florida, New York, London, Berlin, Frankfurt and Madrid, and expects to sell more than 30,000 properties this year.
As the foreclosure crisis winds down, Auction.com is seeking its footing in the post-recession economy, expanding into sales of non-distressed homes, luxury properties and commercial real estate.
In September, Auction.com sold the 372,000-square-foot Savi Tech Center in Yorba Linda. Ed Hernandez, a Cushman & Wakefield agent who represented the seller, said his colleagues were skeptical at first, but found that online transactions can be as efficient and profitable as traditional deals.
“You’ve got these guys bidding on this $50 million asset as if it’s on eBay,” Hernandez said. But, he said, “It worked out great.” Frieden and Friedman now aim to transform the entire real estate process.
Home hunting and price comparisons all are done on the web. Completing the transaction online, they say, is the next step in the evolution, though many agents question whether most shoppers will buy a home on the Internet.
“Our goal,” said Friedman, “is to have everybody buying and selling real estate on our website. Agents, brokers, principals. Everybody’s welcome.”
Auction.com’s co-founders met at a football game when they were seniors at Loara High School in Anaheim, Calif. They bonded over their love of electronics.
The 6-foot-6 Frieden began selling stereo components at the Orange Drive-In swap meet when he was 16. Friedman was selling gadgets at the swap meet, too. By senior year, both had their own booths, getting the type of business training few other teens could match.
“We had like-kind interests,” said Friedman, who at 52 is five months younger — and seven inches shorter — than Frieden. “He was crazy. I was crazier.”
A year or two after graduating from high school, they went into business together, opening a discount stereo store in Anaheim.
Within 18 months, the pair had more outlets of the Stereo Connection, a small chain with other locations in California, in Santa Ana, Westminster and San Diego.
On a weekend in the mid-1980s, Frieden and Friedman hired an auctioneer for a promotion and put their stereos, headphones and components up for sale in an auction at the Westminster store. The owners made about $100,000 from that sale — more in one weekend than they made in an entire month. Frieden and Friedman were hooked on auctions. “It was an ‘aha’ moment,” Friedman said.
Not long after holding that first stereo auction, Friedman signed up for a two-week course at the Western College of Auctioneering in Billings, Mont.
By day, he learned the auctioneer’s singsong patter, practicing with mock sales of brooms, pots and pans. By night, he hit a local bar with classmates who had plans to work at livestock auctions.
When he came home to Orange County, Friedman taught the trade to his partner, and they began their auction careers as a sideline, mostly working charity auctions for the experience.
Frieden and Friedman still might be in the stereo business if a Circuit City hadn’t opened across the street from their Westminster outlet. They figured the days of small stereo retailers were numbered as the big chains moved in.
They sold their business around 1986, and began investing in commercial real estate — car dealerships, strip malls, restaurants. Their first big auction occurred when William Lyon Homes hired the pair to sell furniture from the developer’s models. In 1989, the pair traveled to Australia, where real estate auctions are popular, to learn more about property auctions.
Demand for their auctioneering skills took off after the housing market crashed in 1990. A California developer had 53 homes it couldn’t sell and asked the pair to auction them off. A thousand prospective buyers turned out for Friedman’s and Frieden’s first sale at the Riverside (Calif.) Convention Center. They sold all 53 homes for around $10 million.
Their new company, Real Estate Disposition Corp., or REDC, began selling foreclosed homes, excess builder inventory and commercial buildings throughout the West. By then, Friedman and Frieden were hiring full-time auctioneers to run the sales.
Home auctions died down when the 1990’s recession ended, so the pair concentrated on their other business, auctioning off isolated, low-priced land parcels across the country. But another crash a decade later would bring their venture back to life.
Impac Mortgage Chairman and CEO Joe Tomkinson approached Friedman and Frieden in 2006, proposing to join forces selling a growing number of foreclosures in Southern California.
His firm would seed their company with lender-owned foreclosures, and the partners would stage giant sales in hotel ballrooms and convention centers, salvaging as much value as they could from the steeply devalued properties. Their first sale occurred in May 2007, drawing at least 2,000 would-be buyers to the Los Angeles Convention Center to bid on 300 Southern California homes.
“It’s time to sell, sell, sell some homes,” the auctioneer said, launching the sale.
As the recession hit, Bear Sterns and other lenders with bursting inventories of foreclosures began using the firm, and their business mushroomed. In mid-2008, private equity firm Stone Point Capital became a 50 percent investor, expanding the firm’s contacts on Wall Street and in the commercial real estate industry.
At some point, it dawned on the firm’s leadership that auctions could be just as successful online as in the ballroom, but without the overhead.
Frieden and Friedman paid $1.8 million to buy the Auction.com Web address and changed their company’s name.
“It truly changed us from a company into a brand,” Friedman said.
Auction.com’s listings come from a variety of sources. Lenders sign on to list inventories of bank-owned foreclosures. Real estate agents, even individual homeowners, post their properties. Commercial investors or their brokers come to the site to find bidders for apartment houses, warehouses and office towers.
Foreclosure sales must be held live, whether on the courthouse steps or by sites such as Auction.com. But company officials estimate that 90 percent of its auctions now are online, monitored from Auction.com’s two-story “war room” at its Irvine, Calif., headquarters.
Like traditional sales, buyers get an opportunity to view the homes sold by Auction.com. Sales contracts and disclosure forms are available online for download before a sale.
A clock to the right of each home’s web page tells when the auction begins, the time remaining and the most recent offers.
Buyers pay a deposit. They also must demonstrate they can cover their bids and then if they win pay a “buyers premium” equal to 5 percent of the bid price. Agents who represent buyers and sellers can collect a commission.
Bids are expected to meet the reserve minimum set by the seller. In the Holyfield auction, for example, the $6.98 million final bid didn’t reach the reserve amount, so the outcome of the sale was still unresolved at the end of the week.
Patricia Pope, an agent with Hom Sotheby’s International Realty, used Auction.com last year to sell a Dana Point home that wasn’t moving. It sold in a September 2012 auction for $1.1 million.
“I had a wonderful experience with them,” Pope said. “(The home) got a lot of exposure and it ended up selling.”
But not everyone is happy with Auction.com.
About eight months ago, lender and mortgage servicer Nationstar agreed to bring short sales — or sales under the amount owed on a mortgage — to Auction.com to “validate” an existing buyer’s offer. Auction.com says it gets higher offers in just over half of the “market validation program” sales, averaging almost $39,000 above the agents’ offers.
Some agents, however, complain that the second-guessing is costing them time and, in the case of a buyer’s agent, money.
“It’s crazy,” said agent Fred Malate of Equitable Property Shop in West Covina, Calif., who had to submit an Anaheim short sale for an online auction after finding a buyer in August. “I already have a buyer, and now they want me to find (another) buyer for them. It’s delaying the deal.”
Auction.com still hosts live auctions. House flipper Randi Sue Iggulden of Santa Ana calls Auction.com a “luxury auction” because its foreclosure sales are in a hotel ballroom, with food, tables, chairs and computer screens displaying property details. But Auction.com sales tend to take longer than sales on the concrete walkway outside the Orange County Courthouse.
“They’re always trying to pull higher bids out of people,” Iggulden said.
Huntington Beach, Calif., broker Tom Moon, who specializes in bank-owned properties, said his commissions from selling homes on Auction.com are about half of what he gets from a traditional transaction.
“For the banks, it’s very smart,” Moon said. “But we would prefer to sell it by the traditional method.”
Frieden and Friedman concede they’re making waves, but say sellers often end up getting more for their properties using their service.
“Nothing good comes from selling houses cheaper,” Frieden said.
Agents also have complained that Auction.com drives up prices by making its own bids on properties until the bidding reaches the “reserve,” or the minimum needed for the deal to close. But Auction.com warns bidders on its website that it will be making bids on behalf of its sellers.
“That’s not something we invented,” Friedman said, noting that Sotheby’s and other art auction houses do the same thing.
Auction.com Executive Vice President Rick Sharga estimated the United States has about 2 1/2 million homes in the foreclosure pipeline and that the foreclosure business will continue to be lucrative for about three years. In Europe, distressed sales are expected to last even longer.
Perhaps 300 of the site’s sales this year were non-distressed properties, he said. Auction.com needs more non-distressed homes to thrive.
The company recently began experimenting with a new website, Sold.com, as a possible entre into the non-distressed market.
An estimated $1.5 trillion in U.S. home sales have occurred in the past year, Frieden said. If the company gets just 10 percent of that, that’s $150 billion.
“The percentage of transactions this year and the next year and the year after that will continue to move online,” Frieden said. “Let’s just say we have a lot of room to grow.”