If you are a seller of real estate, particularly the luxury brand of such, arriving at your wits end is not an uncommon scenario. Luxury real estate, by its very definition, is subjective. It functions well in markets where throngs and throngs of wealthy people live. For instance, Beverly Hills. We’ve been given a window into this luxury real estate world, where television cameras follow pointy-shoe-wearing-slicksters as they launch luxury properties at wealthy buyers. It would be easy to watch this show and take away nothing but the idea that pointy shoes and fancy cars and ample sunshine are, indeed, the three elements to luxury home sales. But look deeper, look to where one of these fresh-faced Realtors meets with a potential seller. Look where the Realtor tells the client that the home is worth $10MM, and the seller wants $14MM, and after some time or no time at all, a buyer (maybe from China) buys the home for $13.8MM. What goes unspoken is that the buyer was completely and entirely screwed, but look- a Ferrari parked on Rodeo Drive!
Luxury markets love naïveté, in fact, they can’t do much without it. That’s why Lake Geneva is a different sort of market, as it combines lots of wealthy people with an obvious luxury market to pick over, but those wealthy are from the Midwest generally, where a different set of sensibilities often tags along for the ride. Sometimes, this trend is broken, like when a lakefront home sells for a 45% gain when the market doesn’t justify it. That looks like a trend to adjacent owners, but we all know it to be what it really is- an outlier. In the absence of that coastal brand of recklessness, luxury sellers who are unwilling to meet the market where it is often resort to extreme measures to sell.
For instance, sellers will call or email their chosen agents and ask them what’s wrong. Not what’s wrong with the property, mind you, nor what’s wrong with the price, but rather, what’s wrong with the agent. After all, they own luxury real estate, and what they know of such real estate is what they’ve learned from luxury real estate television shows, which take place in Beverly Hills and Manhattan. If the emails and phone calls don’t work, some sellers resort to 10 pm text messages to their agents, which they’ll be surprised to find doesn’t help matters. Once these gyrations take place, and a reduction in price to where the market wants the home is decided against, the wits end has arrived. Up next? Auction.
Luxury real estate auction companies are all different, but they are all the same. They combine sleek websites with large photos with pretty extraordinary advertising budgets. They flood the target market with knowledge of this auction, and they generate interest in what is an otherwise tired market offering. As a side note to sellers who love the advertising and wonder why their traditional broker doesn’t advertise with such gusto, please consider that most of the time the auction house is given an up front payment by the seller, by which they advertise in these fanciful outlets. As a side note to that side note, if any seller of mine, current or future, would like me to advertise daily in the Wall Street Journal, I am more than happy to do so assuming I’ve been paid up front by the seller for such expenses, just like our auction house friends. Anyway, the buzz is generated through seller-paid advertising, and the dates are set in stone. The luxury property will be auctioned, to the highest bidder, no matter the bid. Exciting!
These sorts of auctions have become somewhat common out in the West, or anywhere else in the country that an overpriced, albatross of a property has lingered on the market for too long. The goal of the auction is very, very simple. It’s to liquidate the property. But lest you think the seller is truly interested in liquidating at a rock bottom price, please don’t. The true, unspoken goal of any auction, whether it’s of some ancient pottery or a giant diamond or a house on a ski slope or one on the North shore of Geneva Lake, is to get a buyer to overpay. The function of a market is to test out prices, to present a product to the world in hopes that the product and the price satisfy the intended buyer. The function of an auction is to engage a buyer, or four, and blend large egos with timing that is, at the time of the outcry, of the essence. The seller, having given their property up to the process, expects a buyer to pay more than he or she would have through traditional brokerage channels. That is the goal of the shiny ads. That is the goal of the slick website. That is the goal that is representing an auction seller.
My goal, of course, is to protect a buyer from such nonsense. That’s why any buyer considering the purchase of an auction property in this market would be exceedingly wise to contact me first. To get me in their corner, to advise and direct, yes. But mostly to provide market context that will ensure overpayment does not occur, slick drone video footage or not.