As a coworker and I were pondering the housing market yesterday, I wondered whether it would be possible to build a computer simulation that would provide a relatively accurate model of a perfectly efficient housing market. Unfortunately we didn’t come up with a good way to do that, but he did suggest a real-world experiment that would help bring about more rapid price discovery in today’s slowly grinding housing market.
Consider the various auctions of new developments that have become commonplace during the long, slow bursting of the housing bubble. Most of the time, each home in the auction has a published minimum bid and an unpublished minimum reserve price (the lowest price the seller is really willing to let the home go for).
What if a real estate brokerage put on a similar auction for a bunch of re-sales? Gather between 50 and 100 sellers from around the region, advertise a big “auction event,” start the bidding on every home at $10,000, and see what happens. Just like the new development auctions, you could have an unpublished minimum reserve price so the homes would not be allowed to sell for less than the mortgage amount or less than the seller is really willing to take.
It seems like an event like that would be the perfect way to find out what homes in an area are really worth in today’s market. No more slowly chasing the market down. No more experimenting with the price. No more “standoffs” between sellers and buyers. Just real market prices.
I think it could totally work. If I had the time and the proper licenses, I would probably organize such an event myself. What do you think? Could a resellers’ auction be an idea whose time has come?