Two-minute auction sells $1.6 million house, but that's only part of story
Problem: How to sell a superexpensive home when buyers are scarce, financing is next to impossible, and a sale is needed fast. Solution: Sell the property at a two-minute auction.
That's the way one real-estate problem was handled not long ago in California. A Santa Monica residence, located in the "gold coast" area on the Pacific Coast Highway north of Los Angeles, was sold for $1.6 million -- in cash -- at the clap of an auctioneer's gavel.
The auction lasted exactly two minutes!
The auctioning of residential real estate is slowly but steadily becoming a significant trend in the US today. However, as the auction becomes a more viable and frequent marketing technique, it is becoming apparent that the auction format and style used successfully today is far different from old auction forms.
Further, the people (bidders) who are attracted to the new breed of real-estate auctions are far more sophisticated than in past years.
The buyer of the recently auctioned $1.6 million home, for example, is Sam Nassi, owner of the Indiana Pacers. He bought the luxurious Mediterranean villa as a "second home."
The 6,000-square-foot house is a bit small, Nassi feels, so he plans to add several rooms.
The residence was originally built in the 1940s by fight promoter Jack Doyle. The auction was handled by Kennedy-Wilson Inc., one of about five major firms in the US that now specialize in planning and producing real-estate auctions.
One of the firm's principals, Don Kennedy, wielded the gavel in this particular auction.
The two-minute auction was preceded by a six-week advertising campaign, including the printing and distribution of a full-color, multipage pictorial brochure.
Even so, advertising is not the first step in current real-estate-auction procedures.First comes a feasibility analysis of the property to determine just how tough it will be to sell the property, who are the potential buyers, and what price should be asked. Then comes product planning and the structuring of a comprehensive sales-promotion program.
Such a marketing technique has long been used to sell commercial properties and raw land.But using this tool to market residential properties is just now surfacing as a significant home-selling device.
Conventional single-family homes are not the only type of residential property being sold at the flick of an auctioneer's gavel. All types of properties are being auctioned. Kennedy-Wilson recently auctioned all 34 units of a new condominium-conversion development -- all in a quick succession of gavel raps.
The sell-out of the condo units, incidentially, sold to bidders at an average price that was 132 percent above the announced minimum price, according to a Kennedy-Wilson spokesman.
When a particularly elegant high-priced residence is offered at auction, bidders are often registered in advance. Only persons that qualify for registration, using criteria determined by the auction firm, are permitted at the auction.
In some cases, bidders are also required to bring a minimum amount of cash or other "good funds" with them as part of their registration requirements. In the case of the $1.6 million auction, a minimum of $100,000 was required. Eight registered bidders participated in the auction.
When one bidder wants to overbid another during an auction, the increase must be at least a minimum increase, or increment, as determined and announced by the auctioneer.
On expensive properties, these increase increments usually range from $500 to 5,00.
Most serious bidders inspect the soon-to-be-auctioned property -- sometimes several times -- before auction day. They also carefully examine in advance all pertinent documents (deed, title report, restrictions, covenants, etc.)
The auction itself is not the shouting, hardsell type of production many people connect with auctioning. It is not a carnival-atmosphere contest between bidders and auctioneer, where a scratch of the nose means a higher bid.
Rather, the new real-estate auctions are held in a classy institutional setting, embellished by good food and soft music. The auctioneer projects the image of a sophisticated professional.
Auctions do not necessarily take commissions away from real-estate brokers. Increasingly, brokers are keeping a watchful eye on coming auctions. When one involves the type of property one of the broker's clients is seeking, he will arrange to have the client registered and will receive a portion of the commission if his client becomes the top bidder. The total commission usually ranges from 4 to 6 percent.
Some brokers, however, do not feel the auctioning of real estate will make a major wave in the future market.
"It's not normally a viable method of marketing real property," one broker told this writer.
"Its one big advantage is to draw public attention to the offered property. Even though a minimum bid is not received at the auction, a conventional sale may soon result after the auction because of the exposure it received."
Another broker expressed a more positive view. "There is definitely increasing interest in auctioning real estate," said Art Leitch, a leading San Diego real estate broker and past president of the National Association of Realtors (NAR).
"It's particularly effective in marketing large, one-of-a-kind and hard-to-finance properties."
No formal study has yet been made on the impact of auctioning as a residential real-estate marketing tool, according to a spokesman for the research department of NAR.
"At this point, we don't view auctioning of real estate as a significant trend," he said.
Nonetheless, professionally structured real-estate auctions are attracting increasing numbers of property sellers and bidders.
In some cases, it's an effective "alternative form" of selling a house.