True Market Value

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True Market Value is a term commonly used for a Real Estate e-auctions or online auction, as it creates transparency for the buyers and ensure that the seller maximises the price of the property to the true market value. The transparency creates a fair deal for all parties and is auditable if any twists around the deal should arise.

Contents

History

The concept is still not widely spread in the real-estate business, as it has only really been used from 2010 and onwards. From 2010 to 2014 there are some Lead User companies who have used this for their corporate real estate divestments. One example is A.P. Moller Maersk Group, who successfully have done this in North America, Latin America, and Europe. [1] [2]

The Concept

Buyers of real-estate are often presented with a situation where multiple buyers are interested in the same property.
This creates uncertainties that can be split into:

By utilising a forward e-auction for the conclusion of the sales process and deal only real and approved buyers participate, so no faking another bid or bluff is needed, which removes one of the uncertainties for the buyer. During the online auction the buyer can see the lead bid and will be able to adjust it as the auction progresses, therefore the winning price will be clear for all and the buyer will not have to guess what offers is the right to win. The time spend is usually not more than a couple of hours which means that if the auction is not won, the time spend is much lower compared to the conventional negotiations. The fact that it is an online auction the bidding can be done in front of any computer which minimises travel time to and from the real estate agent.

Most common approach is to use a 3rd party consultant to ensure that the real estate agent can prove that the process have been conducted fair and that ethics of the online auction is maintained.

Related Research Articles

Auction Process of offerings goods or services up for bid, and either selling to the highest bidder or buying from the lowest bidder

An auction is usually a process of buying and selling goods or services by offering them up for bid, taking bids, and then selling the item to the highest bidder or buying the item from the lowest bidder. Some exceptions to this definition exist and are described in the section about different types. The branch of economic theory dealing with auction types and participants' behavior in auctions is called auction theory.

A real estate broker, real estate agent or realtor is a person who represents sellers or buyers of real estate or real property. While a broker may work independently, an agent usually works under a licensed broker to represent clients. Brokers and agents are licensed by the state to negotiate sales agreements and manage the documentation required for closing real estate transactions. In North America, some brokers and agents are members of the National Association of Realtors (NAR), the largest trade association for the industry. NAR members are obligated by a code of ethics that go above and beyond state legal requirements to work in the best interest of the client. Buyers and sellers are generally advised to consult a licensed real estate professional for a written definition of an individual state's laws of agency, and many states require written disclosures to be signed by all parties outlining the duties and obligations.

Estate agent Person or business that specialises in the selling or letting of property

An estate agent is a person or business that arranges the selling, renting, or management of properties and other buildings. An agent that specialises in renting is often called a letting or management agent. Estate agents are mainly engaged in the marketing of property available for sale, and a solicitor or licensed conveyancer is used to prepare the legal documents. In Scotland, however, many solicitors also act as estate agents, a practice that is rare in England and Wales.

Winners curse

The winner's curse is a phenomenon that may occur in common value auctions, where all bidders have the same value for an item but receive different private signals about this value and wherein the winner is the bidder with the most optimistic evaluation of the asset and therefore will tend to overestimate and overpay. Accordingly, the winner will be "cursed" in one of two ways: either the winning bid will exceed the value of the auctioned asset making the winner worse off in absolute terms, or the value of the asset will be less than the bidder anticipated, so the bidder may garner a net gain but will be worse off than anticipated. However, an actual overpayment will generally occur only if the winner fails to account for the winner's curse when bidding.

Market value or OMV is the price at which an asset would trade in a competitive auction setting. Market value is often used interchangeably with open market value, fair value or fair market value, although these terms have distinct definitions in different standards, and may or may not differ in some circumstances.

An online auction is an auction which is held over the internet. Online auctions come in many different formats, but most popularly they are ascending English auctions, descending Dutch auctions, first-price sealed-bid, Vickrey auctions, or sometimes even a combination of multiple auctions, taking elements of one and forging them with another.

A Vickrey auction is a type of sealed-bid auction. Bidders submit written bids without knowing the bid of the other people in the auction. The highest bidder wins but the price paid is the second-highest bid. This type of auction is strategically similar to an English auction and gives bidders an incentive to bid their true value. The auction was first described academically by Columbia University professor William Vickrey in 1961 though it had been used by stamp collectors since 1893. In 1797 Johann Wolfgang von Goethe sold a manuscript using a sealed-bid, second-price auction.

An English auction is an open-outcry ascending dynamic auction. It proceeds as follows.

For sale by owner process of selling real estate without representation by a real estate agent

For Sale By Owner, or FSBO, is the process of selling real estate without the representation of a real estate broker or real estate agent. Homeowners may employ the services of marketing or online listing companies or market their own property but do not pay a commission and represent themselves with the help of a lawyer or Solicitor throughout the sale.

Flipping is a term used primarily in the United States to describe purchasing a revenue-generating asset and quickly reselling it for profit. Though flipping can apply to any asset, the term is most often applied to real estate and initial public offerings (IPOs).

Auction sniping is the practice, in a timed online auction, of placing a bid likely to exceed the current highest bid as late as possible—usually seconds before the end of the auction—giving other bidders no time to outbid the sniper. This can be done manually, by software on the bidder's computer, or by an online sniping service.

Creative real estate investing is any non-traditional method of buying and selling real estate. Confidence tricks and pyramid schemes in the 20th and 21st century such as Nouveau Riche have embraced the term, leading contemporary usage of the term to be synonymous with unscrupulous practices.

A double auction is a process of buying and selling goods with multiple sellers and multiple buyers. Potential buyers submit their bids and potential sellers submit their ask prices to the market institution, and then the market institution chooses some price p that clears the market: all the sellers who asked less than p sell and all buyers who bid more than p buy at this price p. Buyers and sellers that bid or ask for exactly p are also included. A common example of a double auction is stock exchange.

Auction theory is an applied branch of economics which deals with how people act in auction markets and researches the properties of auction markets. There are many possible designs for an auction and typical issues studied by auction theorists include the efficiency of a given auction design, optimal and equilibrium bidding strategies, and revenue comparison. Auction theory is also used as a tool to inform the design of real-world auctions; most notably auctions for the privatization of public-sector companies or the sale of licenses for use of the electromagnetic spectrum.

Bidding is an offer to set a price tag by an individual or business for a product or service or a demand that something be done. Bidding is used to determine the cost or value of something.

The price discovery process is the process of determining the price of an asset in the marketplace through the interactions of buyers and sellers. The futures and options market serve all important functions of price discovery. The individuals with better information and judgement participate in these markets to take advantage of such information. When some new information arrives, perhaps some good news about the economy, for instance, the actions of speculators quickly feed their information into the derivatives market causing changes in price of derivatives. These markets are usually the first ones to react as the transaction cost is much lower in these markets than in the spot market. Therefore these markets indicate what is likely to happen and thus assist in better price discovery.

A smart market is a periodic auction which is cleared by the operations research technique of mathematical optimization, such as linear programming. The smart market is operated by a market manager. Trades are not bilateral, between pairs of people, but rather to or from a pool. A smart market can assist market operation when trades would otherwise have significant transaction costs or externalities.

In game theory, decision-makers deduce strategies for how to behave within the constraints of a game. Market design is the flip side of that coin: given a set of agents, market design seeks to identify the game rules a market designer might implement that would produce the desired behaviors in the players. In some markets, prices may be used to induce the desired outcomes—these markets are the study of auction theory. In other markets, prices may not be used—these markets are the study of matching theory.

Reverse auction type of auction in which the traditional roles of buyer and seller are reversed

A reverse auction is a type of auction in which the traditional roles of buyer and seller are reversed. Thus, there is one buyer and many potential sellers. In an ordinary auction, buyers compete to obtain goods or services by offering increasingly higher prices. In contrast, in a reverse auction, the sellers compete to obtain business from the buyer and prices will typically decrease as the sellers underbid each other.

Art market marketplace of buyers and sellers trading in the commodities, services, and works-of-art commonly associated with the various arts

The art market is represented by a marketplace of buyers and sellers trading in the commodities, services, and works-of-art commonly associated with the various arts. The art market is also concerned with the production of new art which enters the art market. The art market is an example of one type of marketplace, among many different types of markets which occur in economics. In particular, the art market has many similarities with other marketplaces where buyers and sellers meet, as well as significant distinguishing factors indicative of its differences from other types of markets in economics.

References

  1. https://www.youtube.com/watch?v=FyfT57fHOrM
  2. "Real estate guide". Sunday, February 23, 2020