David Sandwith has been trying to unload his seven-bedroom house on Mercer Island, Washington, since 2009, listing it first for $32 million, then cutting the price to $28.8 million last year. After not receiving any acceptable offers, he’s putting it up for auction.
“I have a growing family and I have opportunities that I want to pursue in my life, and that doesn’t necessarily mean that I will be located here in the greater Northwest,” Sandwith, 41, said in a telephone interview. “The time is right for us to sell the home.”
Real estate auctions, long used in the sale of foreclosed properties, are becoming more popular among wealthy homeowners to drum up interest for mansions that have languished on the market after the housing crash. In exchange for a quicker sale, many sellers are accepting price cuts of 50 percent or more.
Sandwith, a father of four who retired in 2007 after selling a family company, hired Gadsden, Alabama-based J.P. King Auction Co. to find a buyer for his 14,000-square-foot (1,300-square-meter) waterfront property. The sale, to be held today, doesn’t have an opening bid. The reserve auction will allow Sandwith to decline any offer he doesn’t deem high enough.
“While our bread and butter are auctions for homes between $3 million and $8 million, calls for these mega-mansions have doubled this year,” said Caley King Newberry, a J.P. King spokeswoman. “Many didn’t have to sell when they wanted to in 2008 and 2009 because they had the holding power, but now they’ve decided it’s time to move on with their lives.”
At a J.P. King competitor, Grand Estates Auction Co., only about 12 percent of auctions are the result of financial distress, said Stacy Kirk Reich, president of the Charlotte, North Carolina-based company. The number of buyers has risen 130 percent since 2006, she said.
“Sellers will come to us for various reasons, maybe the death of a loved one or a divorce, but most frequently because they are reallocating wealth to other locations,” said Kirk Reich, whose company specializes in auctions of properties valued at $1.5 million to $10 million.
The company gets an average of 276 inquiries per listing and 16 bidders per auction.
Homeowners are seeking new methods for selling their properties as the U.S. economy shows signs of sputtering. The Standard & Poor’s 500 Index has declined 6.4 percent in August, poised for its fourth straight month of losses. Morgan Stanley said on Aug. 18 that the U.S. and Europe are “dangerously close” to recession. The S&P/Case-Shiller index, a gauge of home prices in 20 U.S. cities, fell 4.5 percent in June from a year earlier, according to a report today.
The number of sales at Premiere Estates Auction Co., which sells luxury properties, rose 30 percent last year, said Anthony Fitzgerald, a broker with the Manhattan Beach, California-based company. He wouldn’t say how many homes the company sold. The gain is likely to be exceeded this year, he said.
“The actual dollar amount of homes auctioned off has also increased by about that much,” Fitzgerald said. “It means there are more auctions but there are also more high-end auctions. I think it’s fair to say that we’ve seen a 100 percent increase in opening bid prices.”
Premiere Estates is preparing the sale of a Malibu, California, beach estate owned by William Chadwick, a managing director at investment bank Chadwick Saylor & Co. The minimum bid is $22 million. With an original listing price of $65 million in 2008, it is the highest-priced home ever to go to auction, according to Fitzgerald.
At an open house in early August, about a dozen people at a time walked through the 10,500-square-foot, nine-and-a-half bathroom estate, which has five fireplaces, an ocean-view gym, a $1.5 million home theater with leather recliners, and a 75-foot (23-meter) lap pool on a 4,500-square-foot patio.
The home sits on “Billionaire Beach,” a stretch of Malibu officially known as Carbon Beach, where Jeffrey Katzenberg, chief executive officer of DreamWorks Animation SKG Inc., and Paul Allen, co-founder of Microsoft Corp., also have homes.
The home, which Chadwick built in 2005, is assessed at $6.08 million and the land at $2.45 million, according to public records. Chadwick bought the property from Pepperdine University in 2002 for $2 million, according to the Los Angeles County assessor’s office. The $22 million starting bid at the auction is based on recent sales of comparable properties in the area, Fitzgerald said.
Relocating to Chicago
Chadwick is selling because he wants to relocate closer to his wife’s family in Chicago, according to Carol Bird, the home’s listing agent with Westside Estate Agency. Chadwick didn’t respond to a voice mail left at his office. His company, based in Los Angeles, won’t be affected by the move, Bird said.
Interest at the open house indicates a sale may happen before the auction, scheduled for Sept. 18, Bird said. Should it come to auction, Chadwick has the right to decline bids he doesn’t consider to be satisfactory.
While auctions usually result in a sale -- at Grand Estates the success rate is 94 percent -- they can bring about hefty price reductions from the original listing prices.
“Many sellers have unrealistic expectations of the worth of their homes,” said Chris Longly, a spokesman at the Overland Park, Kansas-based National Auctioneers Association.
Half Original Listing
Jack Gerlach, who sold his Malibu home in an auction conducted by Premiere Estates last year after it had been sitting on the market since 2008, got $2.6 million for it -- less than half the original listing price of $5.5 million.
“During those two years my house was on the market, I was in a way at a standstill,” he said. “To use the auction process was a decision to move forward.”
Gerlach, 32, a residential real estate developer, is in the process of building a 10,000-square-foot Mediterranean home in Malibu for his wife and himself. To move ahead with the “dream project,” which he’s planned for six years, as well as two investment properties he’s developing in the Hollywood Hills, he wanted to unload his loft-style house, which has floor-to-ceiling windows.
His loans on the property -- which he bought for almost $1 million and spent $600,000 to renovate with features such as white marble imported from Greece -- were “significantly below” the value of the house, he said. Gerlach decided last year to auction it, which resulted in a sale in June 2010.
Battle to Top
“Auctions draw in a huge amount of people,” Gerlach said in a telephone interview. “You always have that dream that two people will walk in” and “battle each other to the top,” he said.
Most auctions at Grand Estates have fetched between 80 percent to 120 percent of the tax value of properties sold during the past 18 months. Tax values are often well below the prices real estate sold for during the peak years of 2005 to 2007, said Fitzgerald of Premiere Estates.
At Premiere, a Malibu home originally listed for $8.4 million in September 2008 and cut to $6.9 million by December 2010, sold for $5.2 million in an auction this April. An estate in Corona del Mar, California, was priced at $19 million in October of last year, reduced to $12.9 million in January and sold for $7.5 million in April. A mansion in La Jolla, California, was listed for $15 million in February 2009, lowered to $12.9 million in September 2010 and auctioned for $8 million in December.
“Nobody is going to overpay in an auction,” said Katie Bentzen, 56, who sold her Malibu home with a view of Zuma Beach in October 2009 for $900,000, a 47 percent discount from the original listing price. “If you really want to move on with your life now, people have to be ready to get real on the price of their home.”
For Andrew Osinski, 67, a former managing director of the global asset management division of Lehman Brothers Holdings Inc., it was time to move on after his wife’s death eight years ago and his four children left his waterfront home on Long Island Sound in Darien, Connecticut.
“After I listed the house last year, it quickly became stale,” Osinski said. “I’ve been a trader all my life. There’s nothing worse than sitting on a stale position. I wanted to try to get out now.”
He had listed the five-bedroom, seven-bathroom property -- which he bought in 1994 for $1.52 million and subsequently rebuilt -- in May of last year for $12.5 million. This June, after six weeks of promoting the auction and showing the house to potential bidders, it sold through New York-based Concierge Auctions for $8 million, the low end of a range that extended to as much as $10 million the company had suggested. Osinski had a $5 million loan on the property.
“The market has changed,” he said. “I asked too much, as we all do. I hung on for a long time. But this is it. It’s time to move on.”
Osinski, who is retired, is looking to buy a home in Naples, Florida, where he plans to spend most of the year, as well as a second property, a 3,000-square-foot, cottage-style house with a private dock close to Darien.
Sandwith says he expects high bids for his Mercer Island home because “some of the highest recorded sales have been conducted through auction.”
He bought the lot, which had an old house on it, for $5.38 million in 2004, according to King County, Washington, public records.
“That’s a significant piece of property to commit to,” Sandwith said. “I don’t want to limit myself.”