WO2009023255A1 - Method of on-line auction - Google Patents

Abstract

The present invention provides a method of online auction for 1031 real estate property exchange, the method comprising the steps of: registering one or more sellers, one or more buyers, and one or more qualified intermediaries; allowing the sellers, buyers and qualified intermediaries to make their profiles; allowing each of the sellers to list one or more properties for sale; allowing each of the buyers to search for a property; allowing each of the buyers to bid on one or more properties within a preset time period; and deciding a winning buyer, said winning buyer being the buyer who has the highest bid at the end of the preset time period.

Description

METHOD OF ON-LINE AUCTION

This application claims the benefit of U.S. Provisional Application No. 60/964,761, filed August 14, 2008, which is incorporated by reference herein in its entirety.

BACKGROUND

1. Technical Field The present invention relates to methods for conducting online auctions. More particularly, the present invention relates to methods for conducting online auctions of commercial real estate properties.

2. Background Art Section 1031 of the Internal Revenue Code provides for tax-deferred sales of real property, i.e. if a seller sells the property and purchase another (i.e., perform an "exchange" or "rollover"), the tax on the gain can be deferred.

More particularly, in a Section 1031 tax-deferred exchange a property owner can trade one or more relinquished properties for one or more replacement properties of "like- kind," while deferring the payment of federal income taxes and some state taxes on the transaction. At closing, proceeds are transferred to a qualified third party intermediary who holds them until they are used to acquire the new property.

Section 1031 also includes a time restriction: after a property owner has sold their original property, they have 45 days to report to the IRS the other property that they will be acquiring (exchanging for) and they have another 135 days to close on the replacement property. If they are unable to acquire the replacement property within the 180 day time limit, then the third party intermediary releases the held funds and they are required to report and pay the appropriate capital gains tax associated with the original property. Despite such benefits, many 1031 exchanges fail because the owner is unable to find a suitable replacement property within the allotted time.

Thus there is a need for a method that can efficiently facilitate 1031 tax-deferred exchange.

SUMMARY OF THE INVENTION

In one aspect, the present invention provides a method of online auction for 1031 real estate property exchange, the method comprising the steps of: registering one or more sellers, one or more buyers, and one or more qualified intermediaries; allowing the sellers, buyers and qualified intermediaries to make their profiles; allowing each of the sellers to list one or more properties for sale; allowing each of the buyers to search for a property; allowing each of the buyers to bid on one or more properties within a preset time period; and deciding a winning buyer, said winning buyer being the buyer who has the highest bid at the end of the preset time period.

In a preferred embodiment, buyers can search for a property by at lease one of the criteria comprising price, cap rate, property type, investment type, state, ZIP code and time remaining for the auction.

In another preferred embodiment, the method may further comprise the step of allowing each of the buyers to search for mortgage financing.

In still another preferred embodiment, buyers can bid on a property by price or by cap rate. Preferably, when a buyer bids on a property by price, a cap rate corresponding to the price is automatically calculated. Likewise, when a buyer bids on a property by cap rate, a price corresponding to the cap rate is automatically calculated.

In yet still another preferred embodiment, the method may further comprise the step of allowing the buyer to submit its offer for a given price or cap rate and end the auction immediately. In a further preferred embodiment, when a buyer bids on a property, it may be notified on updated status of the auction. Also, when a buyer bids on a property, it can track the property. 5

In yet a further preferred embodiment, the profiles are made on the basis of information provided by the sellers, buyers and qualified intermediaries. The information includes, but not limited to, name of the property, address of the property, purchasing price, selling price, opening price, reserve price, cap rate, property type, investment type, state, ZIP 10 code, time period for auction, type of lease, rent information, description of the property, map of the property, and photograph(s) of the property. The type of property includes basic, premier and featured property.

In yet a further preferred embodiment, when a seller's profile matches a buyer's [5 profile, the buyer can be notified of the property. Likewise, sellers can track the progress of the auction. Also, sellers can communicate with buyers directly or indirectly.

In still further preferred embodiment, buyers and sellers can rate each other and give positive or negative feedback based on the outcome of transaction. Also, preferably, .0 qualified intermediaries can advertise themselves.

Other aspects of the invention are disclosed infra.

DETAILED DESCRIPTION

.5 In one aspect, we now provide methods for online auction for 1031 real estate property exchange, the method comprising (a) registering one or more sellers and one or more buyers; (b) allowing each of the sellers to list one or more properties for sale; (c) allowing each of the buyers to search for a property; and (d) allowing each of the buyers to bid on one or more properties within a preset time period. Preferred methods may further

50 comprise a step of deciding a winning buyer, such as where the winning buyer is the buyer who has the highest bid at the end of the preset time period. Preferably, the seller qualifies for a Section 1031 transaction under the U.S. Internal Revenue Code as a result of a sale under such methods.

Definitions

5 The term "like-kind" used herein refers to similar in nature or character, notwithstanding differences in grade or quality. Examples of 1031 like-kind exchange property include apartments, commercial, condos, duplexes, raw land and rental homes. In a 1031 like-kind exchange any real property can be exchanged for any other real property within the United States if the properties are held for productive use in trade or business or

10 for investment purposes.

As used herein, "commercial real estate" means any real property, including, without limitation, office, retail and industrial rental space, a building and multiple buildings for use by a business entity, or one or more facilities or buildings that a business entity occupies for 15 the purpose of conducing its operations on a routine and ongoing basis.

The term "seller" or "seller's representative" means anyone acting on behalf of a seller or potential seller, including, for example, the seller's broker, the seller's property manager, and the seller herself. The seller represented by the seller or seller's representative includes -0 potential sellers and those actually selling. Sellers can be brokers, individual property owners or TIC & DST (Tenant-In-Common & Delaware Statutory Trust) sponsors who are looking to sell their properties or other real estate related investments.

The term "buyer" or "buyer's representative" means anyone acting on behalf of a .5 buyer or potential buyer, including, e.g., the buyer's broker and the buyer herself. The buyer represented by the buyer or buyer's representative includes potential buyers and those actually buying. The buyers can be those who are visiting a web site with a sense of urgency and are working to acquire their replacement property. They also can be those who are casually looking for an investment property to acquire with no time limitations. 50

The term "qualified exchange intermediary" means qualified (and in some cases licensed) accountants and attorneys who facilitate and close the 1031 exchange transaction on behalf of their clients.

The present invention provides methods for commercial real estate property acquisitions, sales and exchanges. According to one aspect of the present invention, an auction website for commercial real estate property acquisitions, sales and exchanges is provided. It works for real estate in the same manner that EBay works for collectibles and other merchandise. Registered members of the website will be able to bid, buy, sell or exchange properties online that are being offered in an auction format with a specific time limit for the offering. Buyers will be able to bid for properties by price or by cap rate (a capitalized rate for rent compared to purchase price) and acquire the properties that they need to complete their 1031 exchange on time.

In the methods according to the present invention, sellers, buyers and qualified exchange intermediaries are three key participants. The benefit to sellers is that they can have an open bidding process for the properties that they are selling and possibly "drive up" the price higher than they expected from buyers who are under duress from their 1031 exchange time limit. On the other hand, the benefit to the buyer is that they are able to determine within a set time period whether or not they have "a deal" for a property or whether they have to keep searching. The benefit to intermediaries is that they have a venue on which to advertise their services to a specific audience.

A preferred mode of the operation of the present methods is detailed below. A user can log onto the site and is brought to the home page. The home page has many sections which will take the user to wherever they need to go to utilize the site. Examples of the sections include: (i) Property Finder, (ii) Auction Ending Now, (iii) Featured Properties, (iv) Search For a 1031 Intermediary, (v) Search For Financing, (vi) Buyer Profile.

Property Finder section is where a user can search for a property by one, or a combination of, the criteria including, e.g., price, cap rate, property type, investment type, state, zip code and time remaining for the auction. Auction Ending Now section features properties whose auctions are ending within a certain period of time, for example, 48 hours, 24 hours, and the like.

Featured Properties section is a premier listing area for sellers who want to really promote a property for an additional fee.

Search For a 1031 Intermediary section is a section where 1031 exchange intermediaries can register and advertise their services to potential sellers/clients.

Search For Financing section is a section where leveraged buyers of properties can search for mortgage financing for investments. This also may be an area where advertising to banks and mortgage brokers can be sold.

Buyer Profile section is a section where the buyer can fill in information about the type of property that they are looking for (cap rate, location, property type, the amount that they have to invest, etc.). When new properties come in the website that matches up with the buyer's profile criteria they can get an email notifying them of the property listing. Buyers can change their profile regularly as their needs change.

The buyer searches for properties according to their respective criteria. When they find a property (or properties) that they are interested in they log in (after they have completed the one time registration and have been approved as accredited investors by our broker dealer representative) and bid on the property. The buyer can bid on the property by price or by cap rate. After they have submitted and confirmed their bid, they will submit their offer and the corresponding price or cap rate depending on how they have bid. If a bidder makes a price bid, it calculates the corresponding cap rate automatically, and if they bid by cap rate, it calculates the corresponding price automatically. If the buyer really wants the property, a "Buy This Property Now" button may be on the offering page as well. The buyer can click this button, submit their offer for the asking price, and end the auction immediately. As the auction proceeds, the web site may send the bidder an email update on the status of the auction. If the bid is outbid a "you have been outbid" email will be sent to the bidder. Bidders may also be able to track properties they are bidding on (and selling) on their "My 1031 Bid" page which keeps track of all of the auctions that they are participating in.

When the auction has concluded, the bidder who has submitted the best price/cap rate will be awarded the contract for the property so long as they have bid above the seller's preset reserve price. The winning bidder is then notified that they have won a property. They then have a preset amount of time (e.g., 24 hours) to download the purchase and sale agreement off the site, sign it and return it to the seller, and then deposit a certain amount of money (e.g., 1% of the final price) to secure the deal. The deposit will be deposited in an associated escrow account where it will be held until the closing is complete. Bidders may submit their deposit via various methods, including wire, check, credit card or Pay Pal. When the closing has been completed the deposit is then released to owner or operator of the website as the fee for facilitating the transaction. If the closing does not take place then the deposit is returned to the bidder per the instruction of the respective parties. If the transaction does not close due to an error on the part of the buyer, and the buyer is required to forfeit their deposit, the website operator or owner will retain a certain amount of money (e.g., 10% of the deposit) as a fee and forward the balance to the seller and allow the seller to re-list their property. The website operator or owner can communicate with both the seller and the buyer until the closing has taken place.

On the other hand, a seller (property owner, broker) lists a property for sale on the website in the following manner. After completing the one time registration process and broker dealer approval process, the seller logs onto the website or home page and clicks the "Sell" button which takes them to the "Sell Your Property" page.

At the Sell Your Property page the seller completes or uploads various kinds of information regarding the property, including, name of the property, address of the property, time period for the auction, opening price, reserve price, Buy This Property Now price, term and time remaining on lease, rent for the first 5 years, property type, investment type, description of the property, map of the property location and phogographs of the property.

Preferably, Buy This Property NOW Price may be an optional entry. If the seller wants to have a property listing go the full time period and be awarded to the highest bidder (above the reserve price), they can select to do so.

Rent for the first 5 years may preferably be entered year by year. The page can have boxes "year 1 rent, year 2 rent, etc." where the seller will enter the specific expected or scheduled rent for those specific years. This is very important as the site will calculate the cap rate on the listing and can only do so if the correct opening price and rents are entered.

For property type, there may be a drop down list where the seller can select a property type by which to categorize the property they are selling. For example, the list may include: retail, office, industrial, manufacturing, multi family, medical, laboratory, government, and the like.

For investment type, there may be a drop down list where the seller can select an investment type by which to categorize the property they are selling. For example, the list may include, regular lease, NN lease, NNN lease, Tenants-In-Common, Delaware Statutory Trust.

The term "regular lease" used herein refers to a lease where the landlord is responsible for the management of the property and may absorb or charge off to tenants common area maintenance (CAM) fees and real estate taxes.

The term "NN lease" or "Double Net lease" used herein refers to a lease where the tenant is responsible for everything associated with the property except the roof and structure. The term "NNN lease" or "Triple Net lease" used herein refers to a lease where the tenant is responsible for all fees associated with the property including taxes, insurance, maintenance, etc.

The term "Tenants-In-Common" or "TIC" refers to an investment vehicle where an investor can own a specific share of an investment property but be considered an individual owner (not a partner of the other owners).

The term "Delaware Statutory Trust" or "DST" are used to be similar in nature to TIC but have different regulatory requirements because the ownership (beneficial interests) are held in a trust.

The seller optionally can input data on the property, its benefits, and other important information in a narrative way.

The seller can also select the type of listing that they would like for their property. For example, the type can be basic, premier, and featured property. Only for the purpose of explanation and illustration, for a basic property, the listing cost could be $100 or less. For a premier property, a $250 fee their listing can be placed at the top of the listing page after a search and it is highlighted in a colored background to enhance its eye appeal. For a featured property, a $500 fee their listing can be placed on the home page in the "Featured Property" section. Their listing is placed at the top of the listing page after a search and it is highlighted in a colored background to enhance its eye appeal.

If the seller is a broker or sponsor and will be selling many properties and real estate related investments then they can complete a Seller Profile which will allow them to provide as much information about themselves and their company as they would like.

After the information has been uploaded the auction begins. The seller can track the progress of the auction from their "My 103 Ibid" web page. Prospective buyers who are looking at the listed property may email the seller questions about the property via the website.

The website may have a member profile system similar to the one utilized by eBay. The website may provide a function which allows members to rate each other and give positive or negative feedback based on the success of a transaction.

The website also may provide a function to generate revenues through advertising as well as services described above. More particularly, sellers may have to pay insertion, listing and closing fees. The initial insertion fee is the fee charged for placing the listing. It can be charged, for instance, by auction period. The listing fee is for the way the property will be listed. It can be charged according to the type of property (i.e., basic, premier and featured property), for example. The closing fee is the percentage of the sale price that the website receives for facilitating the sale through the auction. It will be charged only when the property has sold. It can also be charged according to property price range, for example. In addition to the services, advertising space may be provided to third party intermediaries who wish to advertise via a link to the "Search for a 1031 Intermediary" section on the home page. Advertising space may also be provided to banks, and mortgage lenders who wish to advertise via a link to the "Search for Financing for you Property Purchase" section of the home page. The website can have banner advertising and "charge per click" programs available to advertisers.

According another aspect of the preferred embodiments, brokers and sellers of properties can list their properties on their own web sites and can also list their properties on website in order to improve traffic flow to their sites, increase interest in listed properties, and to reduce the amount of time that properties stay on the market.

The invention has been described in detail with reference to preferred embodiments thereof. However, it will be appreciated by those skilled in the art that changes may be made in these embodiments without departing from the principles and spirit of the invention, the scope of which is defined in the appended claims and their equivalents.

Claims

WHAT IS CLAIMED IS:

1. A method of online auction for 1031 real estate property exchange, the method comprising the steps of:

(a) registering one or more sellers, one or more buyers, and one or more qualified intermediaries;

(b) allowing the sellers, buyers and qualified intermediaries to make their profiles;

(c) allowing each of the sellers to list one or more properties for sale;

(d) allowing each of the buyers to search for a property;

(e) allowing each of the buyers to bid on one or more properties within a preset time period; and

(f) deciding a winning buyer, said winning buyer being the buyer who has the highest bid at the end of the preset time period.

2. The method of claim 1, wherein the buyer searches for a property by at lease one of the criteria comprising price, cap rate, property type, investment type, state, ZIP code and time remaining for the auction.

3. The method of claim 1, further comprising the step of allowing each of the buyers to search for mortgage financing.

4. The method of claim 1, wherein the buyer bids on a property by price or by cap rate.

5. The method of claim 4, wherein when the buyer bids on a property by price, a cap rate corresponding to the price is automatically calculated.

6. The method of claim 4, wherein when the buyer bids on a property by cap rate, a price corresponding to the cap rate is automatically calculated.

7. The method of claim 1, further comprising the step of allowing the buyer to submit its offer for a given price or cap rate and end the auction immediately.

8. The method of claim 1 , wherein when the buyer bids on a property, the buyer is notified on updated status of the auction.

9. The method of claim 1 , wherein when the buyer bids on a property, the buyer is allowed to track the property.

10. The method of claim 1 , wherein the profiles are made on the basis of information provided by the sellers, buyers and qualified intermediaries.

11. The method of claim 10, wherein the information is at least one selected from the group comprising name of the property, address of the property, purchasing price, selling price, opening price, reserve price, cap rate, property type, investment type, state, ZIP code, time period for auction, type of lease, rent information, description of the property, map of the property, and photograph(s) of the property.

12. The method of claim 1, wherein when a seller's profile matches a buyer's profile, the buyer is notified of the property.

13. The method of claim 1, wherein the type of property includes basic, premier and featured property.

14. The method of claim 1 , further comprising the step of allowing the seller to track the progress of the auction.

15. The method of claim 1, further comprising the step of allowing the seller to communicate with the buyer directly or indirectly.

16. The method of claim 1, further comprising the step of allowing the buyers and sellers to rate each other and give positive or negative feedback based on the outcome of transaction.

17. The method of claim 1 , further comprising the step of allowing the qualified intermediaries to advertise themselves.

18. The method of any one of claims 1 through 17 wherein the seller qualifies for a Section 1031 transaction under the U.S. Internal Revenue Code.

19. A method of online auction for 1031 real estate property exchange, the method comprising:

(a) registering one or more sellers and one or more buyers

(b) allowing each of the sellers to list one or more properties for sale;

(c) allowing each of the buyers to search for a property;

(d) allowing each of the buyers to bid on one or more properties within a preset time period.

20. The method of claim 19 further comprising deciding a winning buyer.

21. The method of claim 20 wherein the winning buyer is the buyer who has the highest bid at the end of the preset time period.

22. The method of any one of claims 19 through 21 wherein the seller qualifies for a Section 1031 transaction under the U.S. Internal Revenue Code.