Going once, going twice…gone.
Once the hammer falls on a luxury real estate auction, the deal is done. That’s one of the key reasons sellers go the auction route: they know their home will sell on auction day. But in a low inventory environment where properties are selling at record rates and for more money than ever, the convenience of an auction may not be necessary.
Still, for certain luxury properties that are unique or high-priced, in addition to landing a buyer, auctions can also help sellers get the right price. Additionally, the auction process gives potential buyers a deadline, which means they may not consider a purchase for months or years.
“The [process] it’s just a short period of time, six weeks, compared to a traditional listing, which is six months to a year or more,” said Kathleen Coumou, founder of Global Broker Gold Coast Luxury Real Estate Advisors in Long Island, New York. .
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Ms. Coumou, who is now working with Sotheby’s Concierge Auctions to sell Laurel Hill, a 57-acre estate on Long Island’s Gold Coast formerly owned by the granddaughter of oil tycoon John D. Rockefeller, said one more window small for the buyer can be a motivation. to go ahead with the deal.
“Those six weeks create urgency,” he said. “A lot of people walk out wanting to know, ‘when does the bidding start?’ and ‘how do I bid?’ It presents an opportunity and it presents a little bit of competition in this short period of time.”
Going the auction route isn’t for every property, as evidenced by the continued strength of the luxury market in 2022. But with rising interest rates, concerns about stock market volatility and global uncertainty , the luxury real estate market in the US is already falling. Prime home sales fell nearly 18% for the three months ending April 30, according to a Redfin report earlier this month.
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With higher rates expected and recession rumors among economists, the window for getting the most out of a luxury home may be closing, said Trayor Lesnock, founder and president of Platinum Luxury Auctions.
“Any vendor [finding buyers] in this market they really should take a hard look at what might stand between them and a successful sale,” he said. “An auction is the best way, if you’re that seller, to take advantage of the current market and capture prices before they drop any further.”
A broader group of luxury buyers
Most of the residences that end up under the hammer were traditionally listed first. That includes Laurel Hill, which went on the market in September 2018 for $30 million, according to The Wall Street Journal. After sitting for almost four years, it will be auctioned on July 19 with a reserve price of $10 million.
If a house has been on the market for a long time without much interest, it may be overvalued, according to Lesnock. During the pandemic, increased demand has created bidding wars among buyers, with some prime properties selling within days of listing. If a residence isn’t gaining traction in one of the hottest real estate markets of the modern era, there’s a problem.
“Why isn’t it for sale? It’s the windiest day on record, so why doesn’t this kite fly, right? That’s the way to think about it,” explained Mr. Lesnock.
Homes that remain on the market are often “very unique” and “priced high out of line with market prices,” he added, and that’s what makes them inherently harder to sell. But there are also fewer buyers in the luxury space, which means getting the listing information in front of the right people is key to finding a buyer.
To that end, auction companies have extensive databases of contacts for home collectors and architecture enthusiasts. With the pool of luxury buyers already limited, expanding the scope of the property is vital, according to Chad Roffers, president of Sotheby’s Concierge Auctions. (Concierge, which was founded in 2008, was acquired by Sotheby’s International Realty late last year.)
“The ability to dramatically expand the pool of buyers with the click of a mouse is our strength,” he said. “Over the last 14 years, we’ve built up this incredible database of high net worth individuals, so when we list a property on our platform, that seller gets really incredible reach and focus. It is a selected audience of people who are candidates.”
That’s why Ms. Coumou, who worked for many years with Christie’s Real Estate and saw firsthand how auctions increase art prices, was interested in selling Laurel Hill at auction.
“Why not try it in major real estate, because we’ve done it for so many years in art?” he said, noting that they hope “to reach not only global collectors and connoisseurs of unique properties.”
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The Architecturalist online auction platform has a similar philosophy. The firm, founded in 2020 by Ukrainian-American businessman Chris Pchelintsev, focuses on the niche of architecturally significant houses by Ed Niles and John Lautner. The platform also publishes content about the history of structures, whether offered by Architecturalist or elsewhere, on its blog.
“We get all this information, put it together properly and present it to people so that the target audience knows what they are getting,” Mr. Pchelintsev said. “We educate them before…[and] we have fully disclosed everything about the house. Every single detail that other people might miss…we will sell it as an architectural property to people who understand what it is.”
Pricing and Transparency
The auction process also allows for greater transparency, according to Mr. Pchelintsev. Both buyers and sellers can track bids, either in a live auction or, increasingly, online.
“You get a notification on your phone. Someone just made a bigger offer than you, and you’re like, ‘how dare you?’” she said. “You go ahead and make a bigger offer and now basically, in addition to trying to get this amazing house, you’re also in kind of a competition.”
That competition can help drive up property prices, according to Randy Haddaway, CEO and founder of Elite Auctions, based in Naples, Florida.
“Sellers get more through this process than they otherwise would,” he said. “You have a bunch of millionaires competing with each other, and none of them are used to losing. They don’t want to leave and that drives up prices.”
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Mr. Lesnock agreed. “If you do [an auction] correctly, it will generate a fair market or better prices”.
With a sea change on the horizon for the US economy and real estate market, auction companies that sell homes may see more business in the second half of the year. Luxury homes that have not sold by the end of September may face a long road to settlement, and homeowners may seek an alternative method of sale, especially if they are bearing high costs associated with ownership.
“I think [the third quarter] there will still be a bit of quiet, but we will start to get busier,” said Mr. Lesnock. “But I think we won’t really start to get agitated until [the fourth quarter] and then I think we will be quite busy during 2023.”
The correction in the market, which many say was inevitable given the unsustainability of the boom in the market created by the pandemic, is likely to mean more homes hit the auction block, Roffers added.
“Our platform really thrives when there are major changes in the market,” he said.
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