Two years ago, a 10,000-square-foot home overlooking 150 feet of coastline in celebrity-saturated Malibu, Calif., entered the top end of the market there at $65 million.
But as with many luxury homes recently, a lack of interest eroded the confidence behind that price. And before long the home was being listed for $35 million.
But that still wasn't low enough to bring a commitment from buyers. So the seller, a mega-wealthy businessman, recently adopted an approach that has traditionally been reserved mostly for foreclosures: He's selling the house at auction.
The opening bid is $22 million.
The seller joins the ranks of a growing number of other frustrated wealthy homeowners who, sick of slashing the price tags on their trophy homes, and seeing no sale, opt for a buzz-stoking marketing method.
Perhaps wishing to move on with their lives, they use luxury-home auction services to sell their homes, even if it means accepting a price substantially lower than the initial ask. The trend is bringing some sales prices that bargain-hunters only dreamed of before the meltdown.
"There's a lot of buyers out there with the cash," says auctioneer Tony Fitzgerald, of Premier Estates Auction Co., who is handling the Malibu property and who says business at his auction house has jumped 30 percent in 2009 and 25 percent more in 2010. "The question is getting them interested in the individual property. [A home auction] focuses everyone's attention on a onetime today event."
An auction service like Premier Estates begins by setting an auction date to guarantee a time when the home will sell. The auctions take two forms:
- an "absolute auction," in which the highest bidder always comes away with the home, no matter how low his bid.
- a "reserve auction,"in which a winning bid must meet an undisclosed minimum.
Creating Some Buzz
To generate buzz around a high-stakes event, the service will launch a muscular marketing campaign which plays on the theatrical aspects of auctions and the widely held view that they mean bargains.
Realtor Doug Milne of Kelly Associates, who partnered with the auction firm Concierge Auctions to sell a luxury home in Darien, Conn., this spring, says auctions bring "a sense of urgency to a market that has none" because "when buyers hear the word 'auction' ... [they] think there's a deal involved."
Some industry professionals say the hard-driving marketing constitutes the only real value of auction services and if Realtors were to employ the same methods, they could deliver higher sales to homeowners. But few Realtors can match the marketing might of auction services.
"We leave no stone unturned in our marketing," says Fitzgerald. "We use every facet of marketing that's available." The methods range from print and direct mail advertising to telemarketing and "every single asset that one could bring to bear from an Internet-based process," he adds.
Out of the Woodwork
Andrew Osinski knows about the influence of auction marketing.
After consulting with Milne, who was acting as his Realtor, he hired Concierge Auctions to sell his Darien home, which had previously languished on the market at a listing price of $12 million. Concierge, which reports a 25 percent increase in inquiries from luxury-home owners as of late, gave tours of the home to more than 100 people and attracted eight qualified bidders – all of whom had to put down a hefty deposit to participate in the auction. Six weeks after Osinksi hired Concierge, his home sold at auction for $8 million in late June of this year.
"I was very happy with getting 8," he said. "I think if a buyer was going to pay 10 they would have come in and paid 10 right away. My price initially was obviously unrealistic."
While auction services all but guarantee their clients a sale (if there is a reserve price it often hovers close to the starting bid), some Realtors see auctions as events which attract "bottom-feeders," buyers who come out of the woodwork only when they think they've spotted an opportunity to buy at below-market prices.
Auctioneers don't miss a beat with their rebuttal: "Something is only worth as much as someone will pay for it," they fire back.
And, as it turns out, plenty of Realtors are happy to partner with auction services. They share in a buyer's premium -- a fee the buyer pays which usually ranges anywhere from seven to 10 percent of sale price.
Scott Boruff was more than content to pay this premium when, recently, he purchased a home scheduled to sell at auction. An oilman and developer, Boruff gazed admiringly at one particular home in Knoxville, Tenn., for more than 10 years whenever he passed it with his kids. Listed in 2010 at $21 million, he watched eagerly as the price steadily declined.
"I always had a number. Everybody has a number that they think is good," he said.
So when he discovered that the home would sell at auction (a discovery attributable to Concierge's aggressive marketing), Boruff made an advance offer of $8.5 million (plus $1 million more for furnishings) late this spring. The buyer took the offer, accepting a price $3.5 million below its last listing price of $12 million and canceling the auction.
In addition to the $8 million, Boruff paid a buyer's premium to Concierge comparable to what the auction company would have received if the home sold at auction.
Only time will tell how far below its last listed price of $35 million the once-proud $65-million Malibu home will sell at auction on Sept. 18.
But we can be almost certain of two things: A seller will be able to move on and a buyer will get one heck of a deal.
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