Home Auctions Offer Buyers and Sellers Quicker Deals

At the end of June, 18 luxury homes from Mexico to Manhattan hit the auction block as part of a summer portfolio sale by Concierge Auctions. Properties ranged from a 6,000-square-foot, beachfront Casa Bellamar near Los Cabos, Mexico, to a Battery Park penthouse in the Ritz-Carlton Residences in lower Manhattan. The bidding was primarily done via the company’s online app.

"People really appreciate the app," said Laura Brady, the president and founder of Concierge Auctions, which works with properties in 17 countries. (Note: Mansion Global was a paid partner with the company to help market the summer portfolio.)

Unlike high-energy, fast-talking auctions, an online auction allows both buyers and sellers privacy and transparency, according to Ms. Brady. And not only does the app allow bidding from the comfort of one’s own home (or one of them), it also allows buyers to see every bid that is placed, she said.

"It’s easier to follow than a traditional auction, which can be very fast and difficult to understand," Ms. Brady said.

But not just anyone gets access to the bidding button. For that, buyers provide a deposit—usually $100,000, to be held in escrow—and a letter of reference from a financial institution, Ms. Brady said. Sales are cash-only, so buyers have to prove they have the money in the bank.

Auction companies work closely with clients to help them get set up to bid. But in general the process is simple. In addition to the deposit, which can range from $25,000 to $150,000, potential buyers need only read and agree to the rules of sale. The properties are marketed and available for showings for about a month before the event.

Auctions can accelerate a sale

If a property has lingered on the market, sellers often look into auctions. An auction can renew interest in a home, as well as provide a deadline for a sale.

"Some houses can be on the market six, 12, 24 months," said Misha Haghani, principal at Paramount Realty USA, a New York-based auction company. "An auction provides an accelerated timeline."

There are cases when a property doesn’t get the anticipated interested.

"If bidding doesn’t reach the reserve price, assuming there is one, then the seller may not be obligated to sell the property," Mr. Haghani said. "If the reserve is met—regardless of the number of bidders—then the seller will accept and sell. After all, you really only need two bidders in order for there to be competitive bidding."

Paramount recently made headlines for auctioning off President Donald Trump’s childhood home in the affluent New York City neighborhood of Jamaica Estates. In fact, they sold it not once, but twice. The company had worked with sellers to auction the five-bedroom home in July, and it sold for $1.4 million, Mr. Haghani said.

That buyer then immediately hired the company back to mount another auction. This time the home sold at auction for $2.1 million, just days before Mr. Trump’s inauguration in January, according to Mr. Haghani.  It’s since been rented out by the new owner.

As luxury properties are often pricey to maintain while they’re for sale, particularly if the owner isn’t living there anymore, timing is of importance to sellers.

"The cost to carry these properties can be upwards of $100,000 a month," said Randy Haddaway, CEO and founder of Las Vegas, Nevada-based Elite Auctions. "Do the math."

Upside for the buyer as well

For the buyer, there’s always the chance of getting a great deal in an auction. One property sold at Concierge’s summer auction, Champ d’Or, a 48-000-square-foot mansion outside of Dallas, Texas, had a reserve prices of $5 million. The six-bedroom, 14-bathroom home was built in 2002 at a cost of $52 million.

Agents say it can be difficult to value luxury properties, largely because there aren’t comparable residences to help gauge the price. Additionally, the number of potential buyers with the capital to make such a purchase is limited, and it’s more difficult to determine what others have paid.

But the auction process puts it all out in the open, helping buyers know they are getting a fair price, according to Mr. Haghani.

At an auction, the buyer will knows immediately what others are willing to pay, and that helps determine the value. Mr. Haghani said it’s just like auctioning off art or memorabilia.

"What’s a Babe Ruth signature worth?" he said. "It’s worth whatever someone’s willing to pay for it."

"An auction provides comfort that you’re not grossly overpaying for a property," he said. "Someone may think, ‘I’m willing to pay $5 million, but I’m not sure I have to.’"

Auctions also provide buyers with a sense of power, too.

That’s one of the reasons Elite, which also deals in luxury properties and hosts 25 to 40 auctions a year, still does things the old-fashioned way, with live-bidding at the home that’s on the block. Elite recently worked with Swarovski heiress Vanessa Swarovski, who was married to MLB player Jorge Piedra, on auctioning their six-bedroom, nine-bathroom mansion in Westlake, Texas. The price couldn’t be revealed because Texas is a non-disclosure state.

"It’s a first-class, suit-and-tie type of event," Mr. Haddaway said. As is always the case, bidders had the chance to tour the property before the auction, and while waiting for the auctioneer to start the event.

Mr. Haddaway said the competitive nature of auctions can drive the final price up. "Wealthy people are not used to losing," he said. Plus, he added, "People like to compete; they enjoy it."

Auctions becoming more popular

Although auctions aren’t new, Mr. Haghani sees them as an "emerging business model" and their popularity is increasing. Social media is one of the reasons why.

The process "really depends on the ability to properly promote and market that opportunity," he said. "As it becomes easier to reach more people quickly and efficiently, so too does it become easier to generate market value in the sale of real estate by auction."

Not everyone thinks the auction model can catch on in the U.S. In Australia, most properties are sold via auction, said Dolly Lenz, founder and CEO of Dolly Lenz Real Estate. (South Africa primarily uses the process, as well.)

Ms. Lenz said the process is "an effective way" of selling real estate, and more auctions could help the market. In developments especially, she said an auction could help set the bottom for the properties there and build buyer confidence in the project.

However, in America, "people think of auction properties as distressed," she said. "They are not at all positive about them; it’s a big negative."

Mr. Haddaway conceded that the process has negative connotations for some.

"People think ‘auction’ is a bad word, but it’s just another way to sell a property," he said.

He added that often the publicity of the auction helps move properties even before the event. Those sales have made the auction process more appealing. Auctions for luxury properties started in the early 2000s, but started to gain traction in 2005.

"It really took off during the heat of the 2005 boom," Mr. Haddaway said. "Ninety-five percent of luxury property auctions did not make it to auction and sold during the marketing process. It was the auction exposure, marketing and public relations that procured the offer for the sellers."