Home Auctions for Luxury Properties
Home Auctions for Luxury Properties
Having a real estate auction is one of the easiest ways to sell a home. It’s also one of the fastest. Professional auction company show up and do all the work required to create an event, making bidding on your home something that is truly enjoyable for potential buyers. Not just anyone is welcome at these auctions. Before people are allowed to bid, they’re required to put down a deposit to demonstrate that they do have the required finances to purchase the home. The auction company may also contact their banker, broker or other financial professional to verify that the person is, indeed, liquid enough to purchase the property for the price it is likely to go for.
Selling luxury properties is generally a very complex affair. Having the property sold at auction reduces the complexity a great deal and allows buyers to take advantage of a format where the transaction is completed quickly. Of course, for sellers, this means that the home is taken off the market more quickly and that they’re able to part with the home as quickly as you wish. If your home has been languishing on the luxury property market for months or years, hosting an auction might be the best way to finally close the deal and allow yourself to move on from owning the property.
Auctions are genuinely exciting events. For high net worth individuals that can afford to purchase a luxury property on the spot, these events can be absolutely thrilling. People love bidding on items and, as the excitement of bidding overtakes them, they’ll oftentimes start making offers on the property that will ensure an excellent return on investment for the home seller. A professional auction company can make certain that your home is prepared for the auction and that the event itself, when it begins, generates the type of excitement that makes it much easier to sell any property, luxury or otherwise. For some homeowners, this is the best way to get rid of a property that they want to sell.
Different Forms of Real Estate Auctions
Auctions come in different forms. The auction type that most people are probably familiar with is the English auction. There are other types of auctions, however, and they play an important part in how many items are sold, both expensive and inexpensive.
The English auction is the type of auction you’ll be familiar with if you’ve ever participated in online auction sites or, in most cases, if you’ve been to any type of live auction. It is also called an open ascending price auction. This is the type of auction where the seller declares a price and asks for someone to match that price. Each individual auction participant can then choose to up their offer by whatever the auctioneer sets the next ascending price at. These auctions go until a price that nobody is willing to increase upon is reached. These options are open in that anybody can tell what the highest bid offered for the item is.
One of the other well-known types of auctions comes from the Netherlands. The Dutch auction is most well known for being the means by which tulip prices are determined. These function in the same open fashion as do English auctions, but the price descends rather than ascends. The auctioneer will present the crowd of bidders with a price and begin lowering that price until somebody accepts it. This is a common auction model used for the selling of agricultural products and perishable products. It’s not nearly as common as the English auction for other types of items.
Almost as common as the English auction is the first price sealed bid auction. This auction type is commonly used to get the best price on government services. It is distinguished from the English auction in that none of the bidders know what the other bidders are offering for the goods being sold or for the project available. Each of the bidders submits a bid and, because they don’t know what the other bidders have offered, they don’t have any opportunity to adjust that price. Whoever ends up submitting the highest offer gets the item or, conversely, whoever submits the lowest bid in a situation when a contract is being offered wins the auction for the price that they stated.
Each of these types of auctions has a particular area where it is the most desirable. By and large, however, most of the auctions that you’ll see will be English auctions.
49-Month Supply of Distressed Luxury Inventory
Last year I wrote a post titled A Very Dark Shadow predicating luxury real estate sellers should expect a 20% to 30% decrease in prices in 2010 and 2011. Unfortunately, the prediction was accurate and the root causes behind the price decreases remain ever-present.
Specifically, a recent report from Standard and Poor’s highlighted that 1/3 of all nonagency mortgages are more than 90 days delinquent and that there is a 49-month supply of distressed homes nationally. The inventory levels represent a 40% increase over the same period in 2009 and an 11% increase over Q3 2010.
Given that short sales and foreclosures currently represent 30% to 50% of luxury market transactions, they can no longer be considered anomalies. Non-distressed sellers need to be making more realistic decisions about whether or not to actively list properties for sale in light of this reality.
Every active and potential seller must run a net present value calculation to determine whether or not they should list, come off the market, adjust the asking price their property or explore accelerated sales solutions like an auction. The NPV should include the annual cost of holding the property including taxes, insurance, maintenance and an interest factor. Once the annual cost of ownership is determined, the comparable local supply should be divided by comparable annual absorption to determine how long a property will likely be for sale.
For example, the NPV of a property listed for $5,000,000 that costs $500,000 per year to own in a market with 24 homes for sale and eight comparable sales in the last 12 months (3 year supply) is $3,500,000. With a NPV calculation in hand, seller’s can make more realistic assumptions about time frames and list prices.
Real Estate Values in 2010
For those who were getting ready to pop the champage cork after hearing about an uptick in sales volume over the last few months, the Wall Street Journal published a sobering story about the current state of the residential market and where it is headed in 2010.
I think this is the most balanced and accurate reporting I have seen in a long time and expect the next year to unfold as indicated in this story.
More Underwater Mortgages in 2010 – Will Demand Offset This Fact?
A piece on CNBC today is spot on about where the luxury market is heading in 2010. In my opinion, underlying demand has reached a bottom which is great news, unfortunately the bottom is a sloppy one and there will not be a hockey stick increase in absorption.
In the luxury residential market, a significant percentage of properties were purchased as second or third homes and the prospect of being underwater by 25% to 50% is a recipe for many sellers to simply look for ways to walk away and mitigate further losses.
It will be very interesting to see this play out.
A Glimmer of Innovation in Luxury Real Estate
In a first for a high-end real estate network, Christie’s Great Estates launched a series of luxury lifestyle video podcasts this month, providing potential homebuyers with an in-depth look into the history of a property and the lifestyle it offers. The visually rich podcasts—narrated by the homesellers themselves—are reserved for the most distinguished and facinating estates on the market and are available for viewing on the Video Gallery section of the site.
Frank Lloyd Wright – Ennis House For Sale
After being managed by a non-profit for a number of years, the decision has been made to offer the historic Ennis House to a private owner.
The property is listed with Hilton & Hyland and Dilbeck Realtors in Los Angeles in conjunction with Christie’s Great Estates. The house has a conservation easement to protect it from demolition or insensitive alteration, and to guide future restoration, preservation, and maintenance efforts.
Concierge Auctions in Conjunction With Nestler Poletto Sotheby’s International Realty
450 Coconut Palm Road Boca Raton, Florida
Auction July 11, 2009
21.9 Million Dollar Estate at Auction July 11, 2009
Roffers Auction Report 