Should real estate agents use 'transparent bidding'?

Like many listings in the Seattle area, Keith Mourer’s property received multiple offers — 10, to be exact.

But this wasn’t a typical bidding war. Prospective homebuyers could see the offers they were competing against in a process known as “transparent bidding.”

Transparent bidding, explained

Transparent bidding creates an online auction-like experience for the public or a restricted group of prospective buyers, while limiting pressure on a seller. Sellers can set an offer deadline, but they can always turn down the highest bid, or in some cases, choose a lower bid with better terms.

Supporters say the strategy helps listings fetch top dollar, but critics caution that it removes one of a seller’s strategic advantages.

“You have a more actively engaged group of buyers who see that competitive situation and adjust their own offers accordingly,” said Rick Sharga, chief marketing officer of Auction.com-operator Ten-X.

But, on the other hand, he added, transparent bidding also “takes away that sort of aura of secrecy and mystery that some sales agents play very, very well.”

Brokerages and tech startups; agents and DIY

Brokerage and tech startups have built software to support transparent bidding, while industry juggernauts Ten-X and Opendoor also appear to be experimenting with the technique.

Some of these programs require sellers to use a real estate agent, but others are do-it-yourself options. These bidding services contend that consumers are ready for a stripped-down process that promises more certainty.

But practicing agents warn that bidding systems can oversimplify a complicated transaction, and that they prevent sellers and listing agents from using suspense to trigger offers or lead buyers to overshoot.

One user’s experience

Mourer listed his home with the transparent-bidding platform Faira. He used the startup’s free listing option, which includes a multiple listing service (MLS) listing, marketing materials and home inspection and title search reports.

Buyers can review the property reports on Faira’s website and place bids for a $500 fee. They get their money back if a seller turns down their offer. But if a seller accepts, buyers must either pay a 0.5 percent commission to consummate the deal or back out and lose their $500.

The goal is to eliminate the need for traditional earnest money deposits, offer contingencies and “downstream negotiations.” Critics say this could remove protections for buyers.

Listed for $445,000, Mourer’s home ultimately sold for $472,000, joining a horde of other properties that have recently sold above asking price in the area.

“I took a gamble on it,” Mourer said of working with Faira. But the “amount of money I saved by not having to use a Realtor and the fact that people bid and bid up the house” made it worth it, he added.

3 transparent bidding options: Faira, Haus, Reali

Faira properties sell at a discount to unrepresented buyers, but the company lists homes on the MLS through a brokerage subsidiary and partner brokers.

It wants listing agents to use the platform as a sales tool, but charges of unlicensed activity by a state regulator suggest this will be challenging.

Faira provides a radical form of transparent bidding: it publishes bids for everyone to see. Other startups, like Haus and Reali, host a “walled garden,” only showing offers to interested buyers.

Haus, launched by a company overseen by an Uber co-founder, provides transparent-bidding software to listing agents. (Sellers can’t use the tool without a listing agent.)

Homeowners see offers as soon as they come in and can easily compare them in a dashboard. Buyers can quickly revise their bids if they want to beat a new offer.

Haus notifies all buyers who’ve “followed” a property when it receives an offer, but it only shows the price and terms of new offers to buyers who’ve placed bids. Like similar services, Haus anonymizes buyer information when showing offers.

Reali, a Palo Alto, California-based low-fee brokerage, uses software that only displays bids to buyers who’ve made offers. Buyers who might be interested but haven’t placed offers don’t learn whether a home has received an offer.

“The idea is not to create a reality show that all the neighbors are kind of watching live … but for the people who are really in the business of trying to buy this house to be exposed to the transparent information,” Reali CEO Amit Haller said.

The brokerage also uses beacons and mobile-activated door locks for listings.

And like Faira, it publishes property inspection reports for anyone to see. Haller hopes this approach will help Reali attract unrepresented buyers, helping the firm to double-end as many deals.

Opendoor, a property-exchange platform that’s raised $320 million in funding, also may be using a version of transparent bidding.

“Transparency is very important for buyers and is a key business principle for us at Opendoor,” the company said in a statement. “We believe transparency helps to create a fair process, so when a buyer places an offer on an Opendoor home, we are open about the other offers.”

The startup wouldn’t share whether it uses technology to facilitate this practice.

Where does transparent bidding make the most sense?

Companies like Reali and Faira argue that a seller is most likely to secure the highest possible price by providing a welcoming experience to buyers and showing them exactly what they need to do to one-up the competition.

Some industry observers see a place for transparent bidding when homes are selling like hotcakes. But fewer think it makes sense in a buyer’s market, where properties can sit for weeks without receiving any offers.

Some research suggests that auctions tend to produce higher sales prices for properties, helping to explain why real estate auctions are par for the course in some wealthy countries, such as Australia.

How negotiation changes

Faira Chief Technology Officer Eduardo Oliver says that, on two occasions, he’s offered more for a home than what it ultimately sold for.

That can happen if lower offers are in cash or come with no financing contingency.

But poor communication, uncertainty and even conflicts of interest — like the temptation for a listing agent to earn a higher commission by selling to an unrepresented buyer — also explain these outcomes, Eduardo and others charge.

Some agents say these risks are overblown and that full transparency leaves sellers with less leverage.

Tonya Nelson, an agent with Redfin’s Washington, D.C. office, says she was recently able to fetch a higher sales price by keeping a buyer guessing.

The property had only received one offer, and her client was worried no others would arrive. So Nelson fired out a last call for bids.

The email didn’t generate any new offers. But the couple who had made an offer didn’t know that, and, worried about the competition, they raised their offer by at least $2,000, according to Nelson.

“It’s a poker game, really,” she said. “You have the information and you don’t necessarily want to show all of your cards.”

Cases like this are the exception, not the rule, Reali’s Haller says.

Sellers and buyers traditionally must “bet that their agent is better at negotiating than the other agent,” according to Haller.

But transparency, he says, levels the playing field, raising the chance of a fair outcome for both buyers and sellers.

Will the tech sphere follow suit?

Austin Allison, the CEO of dotloop, a transaction-management system operated by Zillow Group, says he can see dotloop offering a feature that would show buyers the number of offers made on a property.

But the feature wouldn’t disclose offer prices, he said, and agents would probably only find it useful in a seller’s market.

“You may not want the world to know that nobody has submitted an offer on your property, or that of the offers that have been submitted on your property, the highest one is 75 percent or half,” he said.

Faira’s Oliver counters that buyers can already tell that a property hasn’t received a competitive offer if it’s languished on the market, and that “treat[ing] your buyers better” — by providing transparency — is a great way to differentiate a listing when demand is low.

Ten-X dipping into transparent bidding

It may be tempting to dismiss transparent bidding as another tech pipe dream, but one industry heavyweight’s interest should cause skeptics to think twice.

Ten-X already shows leading bids for its listings on subsidiary Auction.com, which has used online auctions to sell tens of thousands of distressed properties to investors.

Ten-X (formerly Auction.com) will probably add the same feature to its new listing platform for everyday sellers, said Sharga, a former executive vice president at Carrington Mortgage and senior vice president at RealtyTrac.

Later, Ten-X plans to experiment with publishing all offers, not just the leading bid. Each might include an offer score weighted based on a seller’s preferences, he said.

“… this won’t necessarily be a ‘best price wins’ scenario; the winning buyer might actually have a lower offer price, but the rest of his or her offer might be more attractive to the seller (no contingencies or concessions, shorter closing time, etc.),” Sharga said.

“So the transaction will be just like it is today when a home is listed for sale — except it will take place online.”

A patent application filed by Ten-X sheds light on the inner workings of such a system. The application lists, among other “benefits” that the system would contain, the ability to “publish offers and corresponding contingencies, without displaying personal information about the bidder that would allow for discrimination.”

And that process would be transparent, “in that the participating bidders or users are shown the amounts of the other bids, as well as a score or other quantitative metric or representation which reflect a predicted outcome for contingencies which accompany the corresponding bid.”

Sharga said: “I think sellers and seller’s agents probably don’t intuitively see a value in exposing all the offers. But I think it’s going to happen and going to happen sooner rather than later.”

Email Teke Wiggin.

Editor’s note: This story has been updated.