Can eBay Sell Real Estate?

N E W  Y O R K, Jan. 29, 2003 -- By the time auction site eBay was five years old, in 2000, it was already fighting off accusations that it was a "mature" company that had seen its best days. The solution? Move into high-price markets including autos, real estate, electronics, and sports equipment.

The strategy seems to have worked: The company reported an $11.6 million (diluted) net income during its second quarter 2000. Two years later, by July 2002, the company's (diluted) net income was $54.3 million, which to some extent, was attributable to sales of higher ticket items.

The bright spot in eBay's high-end auctions has been auto sales. In 2002, eBay Motors generated $3 billion in sales. By contrast, it's not clear that eBay's real estate sales are growing quite as well. The company doesn't break down its real estate revenue (the first hint that the company may not have anything to brag about), and it doesn't disclose how many real estate transactions occur as a result of eBay's auctions.

But even if property sales are sluggish, the scrappy company essentially built a bustling real estate portal from scratch, which has proven an invaluable (and cheap) place for real estate sellers to advertise. There were 144,000 real estate listings on eBay in 2002, and an average of 1,000 people see each listing.

A Complicated Business

There is a good reason why eBay's real estate sales are dragging behind auto sales, and it's largely due to the nature of real estate sales in general. Real estate sales are inherently complicated transactions, and in many states it is illegal for property titles to be transferred through an online auction.

As an additional complication, if eBay were to charge a large final value fee (a percentage of the final sale price) as it does in most auctions, many states would legally consider the fee a commission, thus requiring eBay to operate as a licensed brokerage firm.

Instead of getting mixed up in actual property sales, a large percentage of eBay's property listings are just advertisements. It's not a bad business, though. Considering it only costs $150 for a 30-day listing, or $300 for a 90-day listing, eBay offers sellers remarkable marketing value at a very low cost. If a property is auctioned off in a binding agreement, the seller is only required to pay a $3 "final value" fee, and the listing (or "Insertion") fee.

Furthermore, eBay seems to have grown its reach large enough so that property sellers in all corners of the world, selling at all price ranges, can find a potential customer base on eBay. The company has more than 50 residential properties listed at $1 million-plus, and the highest-priced home (in Moss Point, Calif.) is listed for $15 million. Besides a large number of high-end properties, there are thousands of listings for commercial property, timeshare and raw land. In the land category alone, eBay has recorded 20,000 listings in total.

One Florida property manager who listed a $3.2 million beach house on eBay says she is trying to target high-end buyers, and although she wouldn't disclose what other magazines she advertises in, says they are mostly "international" publications. So why advertise on eBay, where the $150 ads usually fall short of high-end brokers' glossy brochures?

"Anyone that's on the Internet is on eBay," she says.

Stars' Childhood Homes for Sale

In the last six months, newspapers have been full of stories about strange or notable properties being auctioned off on eBay. The childhood homes of Bob Dylan, Jimi Hendrix, Madonna, Lucille Ball and George W. Bush were all, at one time or another, listed on eBay.

The result has usually been that hundreds of interested bidders come forward, most of whom turn out to be pranksters submitting phony multimillion-dollar bids on homes they have no intention of buying. The most recent example was rap star Eminem's childhood Detroit home, a modest three-bedroom house in a somewhat undesirable neighborhood. The bidding price topped $13 million, before it was discovered that the bidders were mostly fraudulent, and the reserve price wasn't met.

Kurt Brendlinger, chief executive of Rainmaker (a Los Angeles-based company that auctions off studio's props, wardrobes and sets), has twice listed an Aspen home on eBay for a friend, and thus far the home has had 36 bids. The top bid came in above $5 million.

Unfortunately, a few of the bids were phony, and once they were filtered out, the price was brought back down to $3.2 million (below the reserve).

"About 99 percent of the inquiries we've had are from poseurs," Brendlinger says. "Frankly, we felt it was highly unlikely that a deal would close on eBay. We thought it was just another way to get exposure at a reasonable price."

Cheap, High-Profile Exposure

Despite the odds, several high-profile deals have taken place over the site. The entire town of Bridgeville, Calif., sold on eBay for $1.78 million, more than twice the asking price (although the transaction still hasn't closed.) There was also a Kentucky resort that set eBay's record for one of the highest-priced confirmed sales at $1.2 million (it sold in December 2000). There was also a missile silo "luxury" home that sold for $2.1 million in November 2002.

By and large, however eBay is mostly used as a cheap way to generate hype and gain exposure. Not that hype and exposure are bad things — especially in real estate — they simply don't guarantee a sale.

Shep Barrows, a broker at John Foster Real Estate in St.Thomas, Virgin Islands, recently posted a listing for Thatch Cay, an entire island, in the Virgin Islands. The ad got 150,000 hits, lots of publicity and a fair number of serious bids, but the island still hasn't sold.

"We were really looking for higher bids," Barrows says. "We're still trying to put a deal together with some of the bidders, but we don't have anything concrete."

He may not have a deal, but he's probably much closer to it and it only cost him a few hundred dollars to buy the ad on eBay.

"I thought it was a long shot at first, but now that I've seen the process unfold, I believe it is a good way to market because you get an international customer base."

For more, go to Forbes.com..