Despite a Blazing U.S. Housing Market, There Are Still Perks to Be Found to Selling Via Auction

Going once, going twice…gone. 

Once the hammer comes down in a luxury real estate auction, the deal is done. That’s one of the key reasons sellers choose the auction route: They know their home will be sold on auction day. But in a low-inventory environment where properties are selling at a record pace and for more money than ever before, the expediency of an auction may not be necessary. 

Still, for certain luxury properties that are unique or high priced, besides landing a buyer,  auctions can also help sellers get the right price point as well. Plus, the auction process gives potential buyers a deadline—meaning they can’t mull a purchase for months or years.

“The [process] is only a short period of time, six weeks, versus a traditional listing, which is six months to a year or more,” said Kathleen Coumou, the founder of Global Broker Gold Coast Luxury Real Estate Advisors on New York’s Long Island.

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Ms. Coumou—who is now working with Sotheby’s Concierge Auctions to sell Laurel Hill, a 57-acre estate on Long Island’s Gold Coast previously owned by the granddaughter of oil magnate John D. Rockefeller—said a smaller window for the buyer can be motivation to go ahead with the deal.

“That six weeks creates urgency,” she said. “A lot of people come out wanting to know, ‘when does the bidding start?’ and ‘how do I bid?’ It presents opportunity and it presents a little competition in this short period of time.”

Going the auction route is not for every property, as evidenced by the continued strength of the luxury market into 2022. But with rising interest rates, concerns over stock market volatility and global uncertainty, the luxury real estate market in the U.S. is already slipping. Sales of prime homes were down nearly 18% during the three months ending April 30, according to a report from Redfin earlier this month. 

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With further rates expected and whispers of recession being bantered around among economists, the window to get the biggest return on a luxury home may be closing, said Trayor Lesnock, the founder and president of Platinum Luxury Auctions.

“Any sellers not [finding buyers] in this market should really take a hard look at what may be getting in the way between them and a successful sale,” he said. “An auction is the ultimate way to, if you’re that seller, take advantage of the current market and capture prices before they go down further.”

A Wider Pool of Luxury Buyers

Most residences that end up under the hammer were first listed traditionally. That includes Laurel Hill, which hit the market in September 2018 for $30 million, according to The Wall Street Journal. After lingering for close to four years, it’s headed to auction on July 19 with a reserve price of $10 million.

If a home has been listed for a long time without much interest, it may be overpriced, according to Mr. Lesnock. During the pandemic, heightened demand has created bidding wars among buyers, with some prime properties selling within days of listing. If a residence isn’t getting any traction in one of the hottest real estate markets of the modern era, there’s a problem.

“Why is it not selling? It’s the windiest day on record, why is this kite not flying, right? That’s the way to think about it,” Mr. Lesnock explained. 

Homes that linger on the market are often “very unique” and have “a lofty price that is not in line with market pricing,” he added, and that’s what makes them inherently more difficult to sell. But there’s also fewer buyers in the luxury space, meaning getting the listing information in front of the right people is key to finding a buyer. 

To that end, auction companies have extensive databases of contacts for home collectors and architecture enthusiasts. Since the pool of luxury buyers is already limited, extending the reach of the property is vital, according to Chad Roffers, the president of Sotheby’s Concierge Auctions. (Concierge, which was founded in 2008, was acquired by Sotheby’s International Realty at the end of last year.)

“The ability to dramatically expand the pool of buyers at the click of a mouse is our strong suit,” he said. “Over the last 14 years, we’ve amassed this incredible database of high-net worth people, so when we put a property on our platform, that seller gets really incredible reach and focus. It’s a curated audience of people that are candidates.”

That’s why Ms. Coumou, who worked for many years with Christie’s Real Estate and saw first-hand how auctions amp up art prices, was interested in selling Laurel Hill at auction.

“Why not try it on important real estate, because we’ve done it for so many years on art?” she said, noting that they hope “to reach not only global collectors and connoisseurs of unique properties.”

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Online auction platform Architecturalist has a similar philosophy. The firm, founded in 2020 by a Ukrainian-American entrepreneur Chris Pchelintsev, focuses on the niche of architecturally significant homes by the likes of Ed Niles and John Lautner. The platform also posts content about the history of the structures—whether they are being offered by Architecturalist or elsewhere—on its blog. 

“We get all this information, put it together properly and present it to people so that the target audience knows what they’re getting,” Mr. Pchelintsev said. “We educate them before…[and] we’ve completely fully disclosed everything about the house. Every single unique detail that other people might overlook…we’re going to sell it as an architectural property to people who understand what it is.”

Pricing and Transparency

The auction process also allows more transparency, according to Mr. Pchelintsev. Both buyers and sellers can follow the bids, either at a live auction or, increasingly, online. 

“You get a notification on your phone. Someone just made a bid bigger than you, and you go, ‘how dare you?’” he said. “You go on and place a bigger bid and now you’re basically, apart from trying to get this amazing house, you’re also In sort of a little bit of a competition.” 

That competition can help drive up the price of the property, according to Randy Haddaway, CEO and founder of Naples, Florida-based Elite Auctions. 

“Sellers get more through this process than they would otherwise,” he said. “You get a group of millionaires competing against each other—and none of them are used to losing. They don’t want to walk away and that drives up prices.”

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Mr. Lesnock agreed. “If you do [an auction] correctly, it will generate fair market or better prices.”

With a sea change on the horizon for the U.S. economy and the real estate market, auction companies that sell homes may see more business in the second half of the year. Luxury homes that haven’t sold by the end of September may face a long road to a deal, and owners may then look for an alternative selling method, especially if they are carrying heavy costs associated with the property.

“I think [the third quarter] will still be a little quiet, but we’ll start to get busier,” Mr. Lesnock said. “But I think we won’t really start to churn until [the fourth quarter] and then I think we’ll be fairly busy throughout 2023.”

The correction in the market—which many say was inevitable given the unsustainability of the boom in the market created by the pandemic—is likely to mean more homes coming to the auction block, Mr. Roffers added. 

“Our platform really thrives when there’s major change occurring in the market,” he said. 

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