Kennedy-Wilson Takes Real Estate Auctions Online.

In the old days, real estate auctions had a bit of a tawdry reputation. The fact that property was being auctioned off to the highest bidder usually meant the owner couldn't find a buyer using traditional means or was selling distressed property.

Los Angeles-based Kennedy-Wilson Inc. helped change that by copying the strategies of art auction houses like Sotheby's and Christies to bring credibility to real estate auctions.

Now the company is creating the first online real estate auction site, eProperty.com. The site will provide information about properties offered, including photos, along with due diligence information such as engineering and environmental reports.

"All the due diligence is online, and it's a very easy way to sell real estate," said William McMorrow; chairman and chief executive. "We want to make a broker-friendly site and make it an easier transaction for them."

But old perceptions die hard, and a lot of people still think real state auctions are for distressed property.

Compares to eBay

"Auctions tend to come around more in bad times," said Craig Rubin, Western region business development manager for Alhambra-based Propertyfirst.com, which offers property via the Web. "I always feel auctions are more cyclical as the market starts to flatten. For the past five years, we've had such a booming economy, and you haven't seen so much auction activity because prices have gone up."

Jim Petersen, president of eProperty, disagrees. He compares his firm's auction site to eBay, which he says has served to improve the reputations of all kinds of online auctions.

"Because of resolution trust, real estate auctions have gotten that broad-brush reputation for distressed properties," Petersen said. "But auctions in general can get the highest value for an asset, such as a Rembrandt painting. Because of auctions on the Internet, Americans realize they will bring many more buyers from a greater market area."

The site's first featured residential property is part of the Lands End Nature Preserve on Orcas Island. The land is valued at $2.8 million and bidding started at $1 million when bids were first accepted on Oct. 6. Bidding closed at $2.8 million but the deal has yet to be closed.

Several other purchases are in the works but none have been closed.

Although plenty of real estate companies now have Web sites, none are equipped to actually accept bids the way eProperty.com is.

Rubin says Propertyfirst.com may consider entering the auction market when property prices start going down. "Online auctions will certainly be something to be looked into in the future, when the real estate market isn't as strong as it is now," he said.

Julien J. Studley Inc. has no plans to get into the auction business, said Howard Sadowsky, the company's board vice chairman.

But Grubb & Ellis Co. is taking some initial steps in that direction. Within the next couple of months, the company will be updating its Web site and including e-commerce applications allowing some online bidding, according to Julie Clardy, director of interactive communications.

"Clients need access to info at the right time, at the right place. There are so many variables, and so many documents to access, having one place to centralize it and an easy way to navigate it is important."

Tapping sprawling market

Stephen Cauley, associate director of the real estate center at the Anderson School at UCLA, thinks online auctions are the wave of the future. "I think it will be very important," he said. "In my real estate investments class, we've been talking about REITs becoming more important, and I've been arguing that real estate auctions have some appealing characteristics. In an up market, the bottom line is the seller gets more of the surplus. The seller gets to control the rules of the game."

The Internet is also a way of bringing potential buyers from a wide area into the action, Cauley said. "Traditional real estate companies will certainly get into online auctions," he said.

At eProperty.com, Petersen anticipates the competition but isn't too worried. "There's certainly that possibility -- there's no great obstacle to starting a Web site, but you still have to have some knowledge of the auction business, and you have to have some knowledge of real estate."

Kennedy-Wilson was founded in 1977 as a brick-and-mortar real estate auction company, and when McMorrow bought it in 1988 with a small group of investors, he set about to change the reputation of those types of transactions.

"We formed in 1988 to change the image of the auction business, to make it more professional," he said. "I thought real estate auctions could be similar to how the art houses treated fine art."

As Kennedy-Wilson auctioned more upscale property, it was able to increase, business and prices. "In the past, we had been used to selling small properties. We soon became the largest real estate auction company in the world at that time," McMorrow said.

Over the years, Kennedy-Wilson evolved into a diversified firm, providing services in investment sales, property management, leasing, construction and engineering management, development and acquisition, and technical consulting.