BidX1's digital platform is perfect for the art of investment
Have you ever noticed the prices achieved for fine art, jewellery and antiques when sold at auction? In November last year artist David Hockney’s `Portrait of an Artist (Pool with Two Figures)’ was sold by Christie’s in New York for $90 million – an auction record for a work by a living artist.
The painting, which had a starting price of $18 million, had been forecast to fetch $80 million but hit $90 million after a nine-minute and 22 second battle between two anonymous bidders. The price achieved was not only testimony to the great Yorkshire painter’s talent but also the method of auction itself.
Similarly, last September a two-day auction was held for 142 parcels of oil-rich land in New Mexico’s Permian Basin. The competitive auction, which saw multiple rival bidders, raised $972 million and, as with Hockney’s painting, the winning bid broke the record for the highest price paid.
Two examples (and I was wasn’t short of references) showcasing that the wider business world understands the dynamics and multiple benefits of auctions and the large sums of money that can be transacted through the sale process. Interestingly, the auction model is even taught as a module on most MBA courses due to the benefits in procurement and disposal.
It raises the question why, over the last decade, volumes of property sold through auction have not increased, and begs the question why capital values have only increased modestly in real terms. The benefits of sale via auction, if managed by competent and experienced people, are very real. Just last month The University of Chicago School of Business released a paper detailing how auctions deliver sizeable economic benefits to private landowners in the form of up-front payments that are 67% higher than those from negotiated transactions. Yet we haven’t seen it transition into a wider transactional environment.
With the spread of auctions across different industries and the increasing rise of accessible, useable technology, it must be inevitable that sooner or later more and larger auction sales with higher value lots will move to a digital platform. I predict that in the near future, a greater number of properties demanding a higher guide price will be successfully sold – or traded - by digital auction.
The other driver for selling high value lots at auction is transparency. For many years the property auction market has appeared to be a secret world for insiders to buy and sell assets from each other, and a daunting prospect for outsiders seeking to take part. Online auction platforms are now the preferred option for many banks and private equity houses, whose remit demands accountability and proof of best price. Instantly available detail on the number of parties who have downloaded the related legal documents, the number of bidding registrations that have been started and those that have been completed, the number of bids placed and at what price, all allow for informed decision-making in the days leading up to and after the sale.
Transparency also extends to Anti-Money Laundering and Know-Your-Client requirements, which are much more effectively enforced through a digital process, and which are again crucial for major vendors such as fund managers, banks and private equity houses. As part of the auction registration process at BidX1, every bidder must upload documentation that meets AML and KYC requirements for that jurisdiction. We use the latest in computer vision and cloud computing techniques to verify and certify the authenticity of every single proposed bidder, fully satisfying major vendors’ compliance departments.
Digital auctions also have better sale success rates. We have achieved an average success rate of 74% since going fully digital in October 2018, compared with the industry average of 71%. There is a lot to be said for digital property auctions proving beneficial when selling lots and this can be translated across a range of price points. But that’s just the beginning for technology and property investment.
As in the art and oil worlds, digital auction technology has the ability to transact sales of large real estate assets over a number of days – or even months - through data-rich online rooms, enabling bidders from across the globe to lodge competitive bids. And digital auctions can provide a flexible platform for portfolio sales, development site sales and private treaty sales, which can all be conducted transparently, effectively and efficiently through digital means. I foresee that the 2020s will truly be the decade when real estate investment embraces technology, finally catching up with the rest of the business world.
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