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Putting your home on the auction block -- Page 2

High-end homes in particular can be highly individualistic in terms of design, décor and location, not always a good thing when trying to sell. Case in point: The pink Dallas mansion of Mary Kay Ash, founder of Mary Kay Cosmetics. In frustration, she called National Auction Group.

"When you get into these kinds of properties, it takes an event to bring out the competitive nature in people. It puts the pressure on the buyers," says William Bone, National's founder and president. "We sold Mary Kay's home before the auction. Somebody made a full-price offer and she took it."

Wealthy welcome auctions
High-worth individuals need little convincing of the efficiency and effectiveness of auctions.

"The owners of high-end properties have always embraced the auction method for the sale of antiques, fine horses and art. Now they're seeing they can sell their fine real estate by public auction with equal success," says King.

Several high-profile auctions in recent years helped spur the trend. Bone recalls one of his New York City auctions that ended up pitting the Rev. Son Myung Moon against then-Louisiana Gov. Edwin Edwards. Headlines naturally followed.

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At another event, Moon catered the entire auction and hired a full mariachi band for ambience. Other auction clients have included Ross Perot, Kenny Rogers, ValuJet founder Lewis Jordan and former Treasury Secretary Lloyd Bentsen.

Prospective buyers must post certified funds of $100,000 or more just to bid on $1 million-plus properties, the minimum in this market. Many fly in with an inspector or architect in tow to preview the property prior to the call to bid.

Sellers may choose from two kinds of auctions. In a restricted auction, the seller may retain the property if bidding doesn't reach a certain level. In an absolute auction, the property goes to the highest bidder, period.

And no financing in this crowd; it's strictly cash on the (wine) barrelhead, pardner. The whole shebang takes anywhere from five minutes to 30 minutes tops.

Absolute attractions
Absolute auctions tend to generate the most excitement, especially for hard-to-price trophy properties.

"People will travel across the country, and it's not that they want to buy it cheap. They just want to know they're not wasting their time," says Bone. "Absolute puts a real element of drama in there."

The finality of an absolute auction tends to spur the bidding, as was the case in the 2003 sale of the historic 300-acre Crescent H Ranch in Jackson Hole, Wyo.

"The lawyer Jerry Spence and one of Sam Walton's children were there, along with the former chairman of Columbia Pictures and the current chairman of Solomon Smith Barney. This was a fierce, competitive situation and they wanted to show each other who was the heaviest. This was a ranch that we were asking $14.5 million for and brought $18.5 million," says Bone.

Bone estimates that less than 25 percent of residential auctions exceed the anticipated selling price. Then again, he says, "You can't price these properties. Who knows what some of this stuff is worth? The owners don't.

"Auctions are great for something you can't really put a price on."

Long-running auction fever
Historically, home auctions in the United States have been more associated with Depression-era foreclosures and distress sales of low-end houses than the marketing of trophy properties. By contrast, in countries such as Australia and New Zealand, as many as 50 percent of residential real estate sell under the gavel.

By the 1970s however, auction houses such as Sotheby's began to expand into select U.S. real estate, according to Steve Martin, president and CEO of The Gwent Group.

"Sotheby's realized they were walking into these very high-end mansions and collecting $40, $50 million in estate art, jewelry, china, furniture and whatnot, and walking away from the single biggest asset in the estate. Back in the '70s, the light came on," he says.

Several other factors have accelerated the popularity of home auctions since then, including:

  • The maturing of the baby boom: Boomers caught in the sandwich, with parents and kids to care for, often need to liquidate quickly -- an auction's strong suit.
  • Economic micromanagement: Investors are looking closer than ever at the cost of holding and marketing property.
  • Dynamic regional real estate markets: In some hot markets, informal auctions already determine who buys and who flies. In Southern California, you'd better come in with a full-price offer, or more, to compete in some neighborhoods.
  • The Internet: The growing popularity of online auction sites such as eBay has Americans rediscovering this ancient form of ownership transfer.

"The Internet has provided a lot of options," says Martin. "There are all kinds of foreclosure and FSBO (for sale by owner) sites where people who are marketing those properties can list at very little cost and try to find a buyer before they actually try a live auction."

With auctions gaining in popularity, real estate companies are fast catching the wave. In early 2004, mortgage giant Cendant, which owns Century 21, ERA and Coldwell Banker, acquired Sotheby's International Realty. Many regional real estate firms have formed joint ventures with property auction specialists (a handful of 50 auction firms handle more than 70 percent of residential auction sales nationally), giving real estate agents another option when a high-end listing lingers on the market.

"An auction should be an alternative that you have in your golf bag, that right club when the need arises," says King. "That may be in an estate situation, or upsizing or downsizing or relocating. When that case comes along and they're ready to sell and sell now, the auction is the way to go."

Jay MacDonald is a contributing editor based in Mississippi.

 

-- Posted: June 2, 2004
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See Also
When an auction is appropriate
20 tricks to selling your home
6 reasons your home isn't selling
Track prime rate/other leading rate indexes
More real estate stories

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