For sale to the highest bidder at auction: a 9,100-square-foot contemporary home nestled on two acres, with 40-foot indoor lap pool and gymnasium, plus 1,700 square feet of outdoor decks overlooking Cold Spring Harbor, Long Island, N.Y.
A foreclosure or distressed property sale, right? Guess again. Auctioning unique homes worth more than $1 million is fast becoming an acceptable option, rather than a last resort. That's because owners realize an auction can be a more efficient way to sell a trophy home than the traditional method. Auctions "create a sense of urgency by setting a deadline," says William Bone, president of National Auction Group in Gadsden, Ala. An informal survey of six auctioneers showed that they have put up nearly 500 trophy homes for auction this year, up from 300 in 1996. Typically, about 70% of the homes are sold.
FEW NIBBLES. Selling at auction makes sense when you have a one-of-a-kind property, high carrying costs, and a need to unload quickly. "People who can afford homes like mine would rather build to match their own tastes," says Alex Mitchell, owner of a dental-supply company whose home is described above. Mitchell paid $1.5 million in 1992 for the house, which was built during a real estate boom in 1986 for $2.8 million. He listed it with a broker last year for the price he paid, but had few nibbles.
Auctions establish a price for properties like this--ones that are difficult to value because they can't be compared with other homes. Buyers sometimes pay up to 20% less than the last selling price. "Auctions get the job done," says Shemi Rokeach, vice-president of Global Equities Group, a New York real estate investment firm. "With a conventional broker, you just hope your property sells." Rokeach's 2,500-square-foot Manhattan penthouse, along with Mitchell's property, are two of seven trophy homes slated to be auctioned by Chicago-based Sheldon Good & Co. on Sept. 16 in New York.
Because they're unusual, trophy homes can take two years or more to sell through traditional avenues--and that gets expensive, says Thomas Battle III, executive vice-president at Gwent Group, a Bloomington (Ind.) real estate research firm. An owner saddled with a vacant home pays about 17% of its market value annually in taxes, insurance, mortgage, and upkeep, plus loss of earning power on that money.
Those burdensome carrying costs can make sellers willing to pay the up-front marketing fees auctioneers require. In a traditional sale, brokers foot the marketing bill, but they just advertise locally. Auctioneers spend up to 3% of the property's value over several weeks to market worldwide via newspapers and glossy brochures.
A home is shown by appointment for about three months. On auction day, bidders come ready to buy with a certified check, usually for 10% of the opening bid, or an amount of $50,000 or $100,000. There are three types of bids. With an absolute bid, the property is sold that day to the highest bidder regardless of price. Using a minimum bid, the seller announces the price and can reject bids below it. With a reserve bid, the owner sets a secret figure that the auctioneer must get. Reserve bids protect the homeowner from accepting a price below the comfort level. If homes don't bring the reserve, many sellers pull their properties off the market.
Sellers pay an auctioneer a commission similar to conventional broker fees--between 5% and 10% of the final price. But the sellers typically recover their marketing expenses from a buyer's premium, a fee of up to 10% that the purchaser pays on top of the sale price. Say a house goes at auction, and the marketing fees plus commission equal 6%. The seller can get half of the 6% back from the buyer's premium. So the net cost, 3% of the sale price, can turn out to be less than paying a broker.
To find an auctioneer, contact the National Auctioneers Assn. (913 541-8084; www.auction eers.org) or the National Assn. of Realtors (312 329-8200). Hire a licensed real estate broker who has sold similar properties.
If you choose to put your home on the block, be ready to move out. Auctions
often deliver what they promise: a quick sale.