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.
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 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
- 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.