Swedeauction

Swedeauction (or Swedish Auction) is a type of multiple-step auction (lasting about ten days) designed chiefly for the accurate pricing of family homes and other real estate purchased mostly with borrowed money . The Auction Design recognizes that the final selling price very much depends on the Number of Families Bidding according to the Parabolic Formula . The formula states that fifty bidders will reach a price that (on the average) is about twice the price reached with only one or two families bidding.

Typically a home will be inspected by about 150 families with about 50 families submitting bids. The procedure may seem a bit complicated, but it has been tested many times over the years with excellent results. Most vendors and buyers will quickly recognize, that Swedeauction simply is the most honest and best pricing method for most types of family homes.

Very intense advertising preceding the four-hour Sunday Open House will ensure that enough families show up and that at least twenty of these will submit Opening Bids, OB .
The ads should contain a telephone number for Recorded Additional Information RAI . The recorded message should be 90 to 300 seconds in length. The recorder should have a counter stating the number of incoming calls. About half the families calling will actually show up at the Open House. Thus one will know beforehand how many families will show up.

The design also recognizes that ideally the Final Bid should be about 2.2 times the Suggested Opening Bid, SOB. Extensive tests show that it is important that the final bid be at least 1.5 times the SOB . It is recognized that the purchase of a home is highly emotional and thus it is almost impossible to determine the Final Price in advance with any degree of accuracy . Thus one must be content with any Final Bid Quotient FBQ between 1.5 and 3.0 or sometimes even higher . “SOB” and the money amount is mentioned in the advertisements, thus clearly stating that the amount is a SOB and thus likely to increase through competitive bidding. This is to ensure that no one misinterprets the advertised price to be an Asking Price, an Estimate or a Valuation and becomes irritated, when bids increase.

At the Open House a very attractive and comprehensive printed description in color is handed out to everyone. A detailed explanation of the Swedeauction procedure is included. The following facts are stressed: In most countries only written and signed agreements to purchase real estate are legally binding. Thus anyone who feels that the house might possibly be right for him or her is urged to submit a non-binding (low) Opening Bid on a slip of paper (preferably a 210 mm x 99 mm printed form) right there, during the Open House. Every such bidder is guaranteed to receive the next day a Report, containing a list of all bids submitted with an identifying first name of the five highest bidders. Should the highest bid be much higher than the third highest bid, the two highest bids will at this stage automatically be adjusted downwards and reported to be only tick size (slightly higher) than the next bid.

At the First Open House all bids are “Sealed Bids”, but the next day all bids have thus become “Open Bids”. All bidders are now invited to submit new bids that are at least tick size above the third highest bid. At the same time all bidders are again reminded to start talking to their banks to get binding promises to obtain the necessary loans. Meanwhile the bidding continues at a slow, relaxed pace by e-mail, fax or telephone and new reports are issued about twice daily to those who submit new bids. By adjusting the speed of reporting, the auctioneer makes sure that there are at least three bidders left just before the finishing line. Typically the second highest bidder is only 0.2 percent behind the highest bidder and the third highest bidder will be about 5 percent behind as the finishing line is approached on day ten (approximately). After making sure that everyone has received the necessary promises from their banks, the auctioneer will now increase his reporting speed.

After the (first) Sunday Afternoon Open House there should be a (second) two-hour Thursday Evening Open House and additional inspections as demanded by the visiting families. To keep the number of inspections down and save time, it is suggested that only a few additional inspections take place, each inspection with several families present.

Approximately on day ten the two highest bidders will be submitting new bids every few minutes and the bids are reported back to the other bidder by phone. Sometimes a bidder will ask for more time to talk to his bank once again, if the bids turn out to be much higher than anticipated. Such a request is normally granted by the auctioneer. The bidding stops temporarily to resume a few hours later . Sometimes the two highest (or even three highest) bidders will increase their bids many times. The auctioneer may then on occasion declare a tiebreak procedure with a three-way telephone conversation with the bidders submitting new bids every few seconds. The winner is invited to come and sign a purchase agreement within 24 hours with a 10 percent deposit to be paid into escrow within three bank days and with a two-week period for conducting a thorough building inspection with the aid of an expert. (Within this period the buyer may cancel the deal and ask to get the money back). The sale then becomes final with a stipulation, that the buyer will accept full responsibility for any necessary repairs in the house. The second and third highest bidders are told that the auctioneer will come back to them, if by chance the deal with the highest bidder falls through.

On rare occasions it actually happens that the second highest bidder becomes the buyer at a price that is tick size above the third highest bidder. On very extreme occasions it is the third highest bidder, that becomes the buyer. This only happens once or twice in the lifetime of an auctioneer. The highest bidders’ dropping out (which happens on rare occasions) is a peculiarity of real estate transactions, as opposed to chattel sales. It is the wise auctioneer who is fully prepared for such a contingency, and through a Swedeauction he remains the master of the situation. The final sale and closing will nearly always go through without any delay and without the need for time-consuming and costly new advertising and Open Houses. When the deal becomes final, the buyer will receive the promised list of the five highest bidders with their full names, addresses and telephone numbers stating their exact bids. The promise of such a list makes the bidders feel that the bidding is likely to be completely open and honest. The bids tend to become visibly higher than would be the case without this transparency.

Never forget: “Beauty is (altogether) in the eye of the beholder” . Sure, the object itself accounts for part of the total value, but very often more than half the total value is in the eye of the beholder. Thus a house may have a “basic value” related to its location, size and usefulness as a home, but that accounts for only part of the total value. There are also other value items involved, such as general attractiveness and the non-tangible feeling of well-being that owners and visitors sense as they enter the house. It is not possible for an expert to pinpoint the total value with any degree of accuracy. But the right kind of auction with many interested bidders will disclose what the value really is. The people who actually hope to live in the house - that is the amateurs - will decide what the actual value is. The valuation expert who claims that he can determine the value beforehand is, quite emphatically, only fooling himself. He may well be 50 percent off the target or more.

Never forget: “A thing of beauty is a joy for ever: / Its loveliness increases; it will never / Pass into nothingness; “ . People tend to increase their valuation as time passes. Thus the slow, relaxed bidding typical of Swedeauction will result in many new and higher bids, as the bidders fall more and more in love with the house at additional inspections and as they read about it again and again in the printed description.

Normally, final prices are about 20 percent higher with Swedeauction than with the obsolete Asking Price method. Occasionally differences of up to 78 percent have been recorded. Houses are sold to the “right families” at the “right prices”. A high degree of satisfaction applies to everyone, seller and buyer alike. Legal fights after the purchase are practically nonexistent. Once these facts become common knowledge, vendors worldwide will demand that their agents use Swedeauction or the vendors will themselves conduct the auctions, thus avoiding the agent´s commissions in addition to obtaining the higher selling prices. Buyers on the other hand know with great certainty that the price paid is only tick size (and thus not substantially) above the bid submitted by the second highest bidder. As with openly traded stocks and bonds the price is set by the “Market”, rather than by just a few individuals.

From 1982 to 2007 Carl Lagercrantz (Royal Institute of Technology 1962) has spent about 10 000 hours inventing, designing, testing and developing Swedeauction to become (almost) fool-proof and to withstand any attempts by agents, buyers or vendors to rig, outsmart, cheat or manipulate the auction result. Such attempts are fairly common and of great concern for good people who try to keep everything fair and honest.

The name Swedeauction is used instead of Swedish Auction, to avoid confusion with Swedish Bankruptcy Auction and other auction types. Other auction types are designed for a variety of products or services: See Auction, Auction Theory, Auction Design, Candle Auction (20 minutes, 1490), English Auction (20 to 90 seconds, for chattel, art and antiques, 1674 ), Dutch Auction (4 seconds, for fish and farm products, invented in 1887), French Auction (or Tâtonnement, for gold, stocks and bonds, 1874), Swiss Auction (for building contract work), First Price Auction (or sealed bids ) and Second Price Auction (or Vickrey Auction for treasury bills, 1961, ). .

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