By Matthew Power. Scott Burton has become used to the raised eyebrow, the second take, the skeptical inquiry. None would deny that he and partner Steve Fox are the whiz kids of online real estate speculation with their company RealEstateSupermarket.com. They have sold hundreds of homes and a lesser number of land parcels online--many of which they never personally visit--at prices that give new weight to the term rock bottom.
"We have buildable lots in Florida right now that are selling for $30 a month for 30 months," Burton says. "We used to sell everything ourselves, but now we've opened our Web site to third parties. Right now we've probably got 50 or 60 parcels available nationally, and we've just started."
For the most part, buyers love this bargain basement approach to real estate sales, but some city officials, especially in Buffalo, N.Y., are pulling their hair out, as homes that they say should have been demolished go on the free market and sell to clients in South Africa or California. They complain that buyers do not maintain the homes and may never see what derelict shape they are in. Many have multiple code violations, requiring significant work to address.
Burton defends his endeavors in part because they provide affordable entry points into real estate, and he notes that a large number of the distressed homes have been sold to contractors with the know-how to renovate them.
"We deal with a lot of people who have never owned real estate before at all," he explains. "And with our own property, we do our own financing, so there's very little paperwork. They just sign a contract with us. As long as they pay their $200 a month to us, or whatever the agreement is, they own the property. A lot of times we don't even do a credit check. It's take it or leave it."
The most perplexing aspect of Burton and his partner's success, however, is the fact that they don't spend half their time (and money) in the courtroom. A builder can't get away with a single product defect these days, yet these online homes often sell with no heating system or plumbing.
Every city takes a different approach to code violations, Burton notes. In Buffalo, for example, "they're very concerned about the exteriors, so they'll cite you if you're missing a handrail, but they won't make an issue of the fact that the home has no furnace. You have to know each city."
"We disclose everything about the property that we know and sell it to them as is--at their own risk. We've been lucky so far. It also helps that we essentially are the bank--and that we try to stay away from properties at the absolute bottom of the spectrum. We have had a few cases where we have given people their money back, where we disagreed with the buyer on the condition of the property. We more or less have a money-back guarantee, and we try to be reasonable." "Lately," he adds, "we're shifting our site away from stuff we only owned ourselves to ones owned by third parties. Then our operation becomes just a venue, like eBay, where people resolve their own disputes."
Small builder bonanza?
Citing the online auction model is no accident. The two men first got their venture under way by selling properties on eBay and Yahoo auction sites.
"EBay has opened a lot of peoples' eyes to what the Internet can do for the real estate investor," Burton notes, "especially for properties that are not really valuable enough to interest realtors (who work on commission). That's really the purpose of our site, to be a venue for the person who wants to be a real estate investor with little risk."
But lately, he says, home builders have begun to make inquiries. You might suspect that they are buying teardowns for new homes. Not so. The cheapest properties tend to be in inferior neighborhoods or areas where new housing might not sell quickly. Instead, the lure of low-cost land has brought builders to the table.
"We've been contacted by two or three builders in Florida who are interested in parcels. This lets them get in without as much paperwork, and they can put up a spec house without potentially losing their shirts. That's one of our niches, the smaller builder looking for affordable land."
"You could buy property through Realtor.com," Burton adds. "But why pay $60,000 or more for a duplex, when you can buy one through us for $6,000? There's always haggling, but our prices don't change much. We buy properties through tax auctions, foreclosures, or our own network of distressed individuals at below wholesale prices, and sell them for wholesale. Typically we close within 60 days, often with zero down."