Springtime is seeing momentum surge for auctions that sell South Florida real estate to the highest bidder. It’s just one more strategy to move properties in a down market.
The fact that Hall of Fame Auctioneer “Spanky” Assister discussed the trend with a group of RE/MAX real estate agents at a recent Las Vegas conference is proof the industry is exploring the auction option.
Back home in South Florida, Miami’s Keyes Company formed a strategic alliance with Chicago real estate auctioneer Sheldon Good Company in February to peddle properties. And Sol Sotheby organized three South Florida luxury real estate auctions in March alone.
It seems, instead of competing with auctioneers to do business, more realtors today are partnering with them. The numbers are convincing. Despite a downturn in home sales, residential real estate auctions grew 5.3 percent in 2007, according to the National Auctioneers Association. In fact, real estate is the fastest growing segment of the auction industry, with over $58.5 billion sold at auction in 2007.
“As financial institutions decide that they no longer want to wade through this Florida real estate market in the traditional way, real estate auctions will offer them a powerful, highly efficient and time-tested real estate marketing solution,” says Michael Pappas, president and CEO of the Keyes Company, a full-service real estate firm.
In Florida, 25,000 condominium units are available, and 20,000 more are coming online in the next two years, according to Pappas. This increased inventory, combined with ever-tightening lending policies, has led to a shortage of traditional buyers and only 8,500 sales in the past year. But it’s not just condos; luxury homes are also making their way to the auction block.
Sol Sotheby’s International Realty and Nestler Poletto Sotheby’s International Realty held their first luxury property auction for Miami-Dade, Broward and Palm Beach counties on March 28. Many of the properties were “absolute,” meaning they were sold to the highest qualified bidder with no limiting conditions or amounts.
“It’s becoming increasingly difficult to create transactions for our sellers because there is a lack of buyer urgency in the market. The auction lets us position our sellers’ properties on a pedestal, so to speak, and bring more attention to them,” says Chad Roffers, president of SKY Sotheby’s International Realty. SKY completed two auctions in 2007 and, by mid-April, will have already completed six auctions for 2008.
Roffers’ internal data tells him that the average auction property yields less than the market average but sells much quicker. Specifically, Sotheby’s most recent sale yielded 76 percent of the list price. A similar property yielded 84 percent of the list price through the traditional brokerage process. But the latter took 284 days to sell, whereas the auctioned property sold in 30 days.
Sheldon Good Company has seen real estate auctions work time and time again. Locally, the company brokered the sale of the remaining 88 condos at the Trump Plaza of the Palm Beaches in West Palm Beach, which sold for a total of more than $19 million, as well as five Art Deco hotels on Ocean Drive in South Beach — the Cavalier, Cardozo, Carlyle, Leslie and Victor hotels.
“Real estate auctions decisively establish the market value of properties, particularly in a volatile marketplace such as the Florida real estate market,” says Steven Good, chairman and CEO of Sheldon Good Company. “The auction process takes every aspect of effective real estate marketing and dramatically compresses the sales cycle, minimizes carrying costs and creates a single moment of competitive bidding that determines the property’s true market value.”
“The Trump Plaza of the Palm Beaches properties traded at an average of about 85 cents per dollar, plus or minus a nickel, against what they expected,” Good says. “We had an overwhelming demand for these Palm Beach condominiums, which weren’t even complete when we sold them at auction. The units were in the pre-decorator stage — not even painted — and only contained toilets and cabinets. We had committed to sell only 15 of the units, yet we actually sold all 88 and Donald Trump accepted the bids on all of them.”
Apparently, Trump is a fan of Good and his methods — he wrote the afterword in Good’s book, “Churches, Jails and Gold Mines: Mega-Deals from a Real Estate Maverick.”
For all the advantages driving real estate auction momentum, there are some admitted risks involved for the seller. There is always the possibility that the seller is limiting the potential pool of buyers. The marketing costs around an auction, especially a luxury real estate auction, can be significant as brokers seek to overcome that challenge.
“The biggest risk with real estate auctions is not exposing the property to the right buyers. My concern is drawing a line in the sand and saying, ‘All buyers come forward today and today only,'” says Paul Boomsma, president of Chicago-based Luxury Portfolio Fine Property Collection, a global network of independent luxury brokerages. “The right buyer could be vacationing in Tahiti and never hear about the opportunity.”
When it comes to auctioning off multiple units in a condo project, the challenges are magnified in what is essentially a hastened marketing period. Marketing mistakes are difficult to tolerate with real estate auctions, and conventional marketing methods are not enough to reach the masses, according to Jon Gollinger, co-founder and East Coast CEO of Accelerated Marketing Partners, a real estate marketing and consulting firm based in Alexandria, Va.
“Real estate auctions aren’t always a win-win situation,” Gollinger argues. “It’s hard to say whether sellers are losing money, making money, making less money, or making more money because each deal is like a snowflake. They all look the same but are very different. You have to do your homework to make sure you will win the game before you begin it.”
With no reserve auctions, like the SKY Sotheby model, being sure the game is won before it is played involves getting the word out to potential buyers. For Sotheby’s, that means hitting the international marketplace . The firm says its marketing budget is more than $3 million for the trio of South Florida auctions alone.