All About Auctions: Why An Auction Could Make Sense For Your Luxury Home

It's a funny market we have today.  Some homes are fought over as if they were the last shelter available on earth and others sit on the market for a very long time.  Granted this is mainly a price point issue, but the problem is that sellers and their agents are making one of the cardinal mistakes of real estate marketing.  They make the assumption that each property is to be treated the same.  The truth is, not all homes are created equal.

In today's market sellers and agents need to be ahead of the curve.  They need to be innovative and have progressive ideas that will get properties sold.   Not every property can be sold in the same manner and not every marketing method has only one application.  This is especially true as the price of the home starts to near or exceed $1,000,000.

Auctions are a great example of the above.  Whenever anybody thinks of a property being sold at auction they automatically think of a bank or distressed sale.  Well I have news for you....that is limited thinking and it's time to get creative.  This can be especially effective with higher end, equity rich homes.

Something happens to people psychologically when they hear the word auction.  They automatically think there is a deal to be had and it get's their competitive juices flowing.

Here is what a traditional sales process looks like:

• The seller put the home on the MLS and lets buyers know what is the most that they would expect for their home.  This is the list price.  It basically acts as a price ceiling.
• Each day makes the property that much more stale as listings can continue on into infinity.
• Eventually offers are made under the asking price and a back and forth begins.  The buyer ultimately has the power to establish and stick to a bottom line.
• Buyers tend to feel that if the seller does not accept the offer the home will still be there for them down the road to purchase again, possibly at a lower price.  The higher the price of the home, the more true this statement becomes.

Now compare that to what happens when a property is marketed via an auction:

• The seller put's their home on the market with a minimum bid and a secret reserve that must be exceeded in order for the property to be sold.  This acts as a price floor.
• With each passing day the auction date draws nearer, creating anxiety and a competitive environment for the buyers.
• Some will be tempted to present an offer before the auction in order to avoid the competition.
• The seller is free to accept offers if they wish, and often do.
• If the sale does make it to the auction date each bidder drives up the price of the prior bidder.
• If any single potential buyer does not purchase the property at the auction they fear that somebody else will.

That is powerful.  So what type of equity rich property is best suited for an auction?  In my opinion there are two scenarios that fit well.

The first is a property that is truly unique to it's market.  If you need to sell a home that is unlike anything else in the neighborhood it will be very difficult for you to work out a price in the traditional manner using comparable sales for obvious reasons.  Your home may be much bigger or smaller than the rest.  It may also be much newer or older.  The auction is going to help you find a market for your home.  You may very well have a good idea of where you think it should be, but given that there are no solid comps for you to price against, the auction process will establish a price for you.  Of course, as discussed above, you can control the sales point to some extent by establishing a price floor in the form of a secret reserve price that must be met for the property to be sold.  I find that auctions are especially effective when you suspect your home may be the most expensive property in your area.

The second type of property best suited for an auction is any home that needs to be sold quickly.  If you are selling your home and insist that it must be sold in under 45 to 60 days you may want to consider an auction.  It is simply the fastest way to find a market price for your home.  Again, this is price point sensitive.  In San Diego, for example, single family homes with equity that are well maintained and priced under $400,000 tend to sell very quickly, sometimes over asking price.  However, as you start to creep into higher price ranges an auction becomes more desirable because market times for homes that are sold through the traditional sales process tend to become lengthier as the price of the home goes up.  With an auction you can find out what the market is willing to bear for your home in the shortest amount of time.  Depending on your personal need to sell, this may be an attractive option for you.  Especially when you combine the need to sell your home quickly and are also dealing with a unique home to the area.