By Natalie Sherman, The Baltimore Sun
2:51 PM EDT, July 24, 2014
The founder of Nextel Communications Inc. thought for a couple of years that his 11 fireplaces, eight bedrooms and 18-plus acres on a secluded peninsula on the Eastern Shore might be a little much, but he's bided his time.
Until last weekend. On July 19, his Queenstown home sold to the highest bidder.
"We decided this was a good time to try it," said Morgan E. O'Brien, who purchased the 300 Wye Narrows Drive property in 1999 for $8 million.
The market for luxury homes has struggled since the recession. In the Baltimore region, more than 560 homes listed above $1 million sat on the market in June, but just 36 homes in that range sold, according to RealEstate Business Intelligence, a subsidiary of the MRIS multiple listing service.
On the Eastern Shore, there were nearly 300 listings above $1 million in June. Number of sales? Seven.
Trophy homes typically take longer to sell than the average house, no matter how strong the market, but for sellers finally reaching the limit of their patience, that's where an auction comes in.
"What we do is, we make real estate liquid," said William R. Bone, president of the Alabama-based National Auction Group, who said his firm looks for "motivated sellers." "When you hire us, you know your property is going to sell."
Auctioneers said they are starting to get more calls from owners, like O'Brien, who have held off, growing impatient as they wait for a buyer. These sellers may also be more willing to accept that prices won't return to the pre-crash heights: 1234 Cherry Tree Lane in Annapolis, listed in 2011 at $15 million, went to auction in May and brought $4.2 million after settlement in July.
"It's all about price," said Joe Cooper, president of Alex Cooper Auctioneers, which sold a five-bedroom Colonial brick home in Owings Mills at auction for more than $1 million in June, just slightly above what the original owner paid in 2006. "We try to explain to people what they might get. By doing that, we eliminate some people's dreams, but we sell their properties."
DeCaro Luxury Real Estate Auctions sold about 36 luxury properties around the country last year and expects to do 50 this year, including O'Brien's Penderyn Estate, a 22,500-square-foot, Georgian-style home originally built for the son of the Chef Boyardee fortune, and 11743 Springhaven Court in Ellicott City, a seven-acre property with six bedrooms, four kitchens, two pools and a tennis/basketball court.
Both homes sold in the $5 million range, said firm founder Daniel DeCaro, who declined to specify price because the deals haven't settled yet.
"This correction is taking substantially longer for the high-end market, the luxury market," DeCaro said. "As people start to come to grips with this and to the realization that this market is not correcting and not changing more rapidly, more and more people are choosing to take the approach that we offer."
Auctions, long associated with the the stink of economic ruin, started to shed that reputation in the 1980s. While still a small fraction of the market, they have become increasingly common, as technology increases the reach of marketing campaigns and allows online bidding. For the super-rich, accustomed to buying art, thoroughbred horses and one-of-a-kind furniture from well-heeled auction houses such as Sotheby's and Christie's, the strategy can feel like a natural fit.
"I look at this as I've been a capitalist all my life," said O'Brien, who also tried to sell Penderyn, as well as surrounding lots, more traditionally. "If you make a property widely available and everybody gets a proper chance to look at it and bid, you're probably going to find out what the fair-market value is."
Selling by auction typically involves an intensive 30- or 60-day marketing campaign and open houses. Buyers are responsible for settling fees, and the auction company takes a cut from a buyer's premium, anywhere from 5 percent to 10 percent of the final price. A seller can either reserve the right to reject the bid or opt for absolute auction, as O'Brien did.
In addition to the marketing, sellers also may be gambling on what they know about the psychology of their wealthy peers.
"If you have the slightest interest in the place, you have to get motivated, you have to get going and then the competitive juices get flowing," O'Brien said. "To me, it's a pretty compelling way to get a lot of folks' attention."
One-of-a-kind homes make pricing especially difficult, another reason for an auction to seem like a good option, some said. And as the market appears to be recovering, some may be worried that their brokers aren't aiming high enough.
"[The sellers] end up getting very concerned … that it might not be priced right, that the traditional real estate people that they're dealing with may be behind the priceline," said Stephen J. Martin, chairman emeritus of the Gwent Group, an Indiana-based management consulting firm that used to track auction trends. "They're hoping that they'll be able to take advantage of an upswing in prices, and it only takes two people at an auction to really drive up the price."
It doesn't always work. A Harris Creek estate offered for online auction with a reserve last fall failed to sell. A 3.27-acre waterfront property in Worton advertised with a suggested $950,000 opening bid drew no serious buyers to its May auction.
"We were disappointed," said Joan Lessans, who said she and her husband had wanted to downsize and turned to auction when the 4,450-square-foot home didn't sell via the traditional route. "It was puzzling. ... It seems like it has to do with the market and what people are looking for today."
Lessans said her family is enjoying the estate this summer, but the home, which has an indoor pool and tennis court, remains listed for $1.3 million.
"It's on the market … but we're not going to auction again," she said.
The method is not for everyone, said Ross Mackesey, sales manager of Long & Foster in the Green Spring Valley-Lutherville area and president-elect of the Greater Baltimore Board of Realtors.
"There are properties that are difficult to sell, and maybe that opens it up to a wider audience, but typically people that go to an auction want to bargain," he said. "I deal with impatient clients all the time, and it's been two years since any of our listings went the way of auction."
Even so, some say the efficiency of the method may now be appealing to the everyday home seller, as well.
Seven years ago, William Z. Fox started a firm focused exclusively on residential auctions, and unlike many other firms, he doesn't sell distressed properties.
Fox said he believes there's a growing market for these services, pointing to other countries, such as Australia, where the method is more common and was used for a majority of sales in the country's largest cities, according to a report last year.
"The concept at Fox Residential Auctions is trying to separate auction marketing and sale by auction from distress," he said. "A real estate broker is a professional marketer of real estate. I am a professional marketer of real estate. We both do the same thing. The only thing that's different is the method we use."
Fox, whose firm is based in Timonium, said he expects to handle about 50 auctions this year, including a 19.5-acre waterfront property in Chester on the Eastern Shore that will sell at absolute auction in September. The home was most recently listed for $2.1 million, he said.
"I think that people are coming more and more to realize the efficiencies, the economics and the time considerations of auctions," he said. "Our business has grown fairly dramatically in the teeth of the bad market that we have had for five or six years."
More agents started offering the services during the downturn and have become members of the National Auctioneers Association, even as the market recovers, said the organization's CEO, Hannes Combest.
"It's not an unusual tool for luxury markets at all … but for some reason the everyday consumer hasn't thought of auction as the preferred method," Combest said. "Now they're looking at auction as a very viable way to sell real estate."
Rawlings Auction Appraisal & Realty LLC started doing residential real estate auctions during the downturn. The firm is still seeing demand, said Patti Rawlings, one of the owners of the firm, which is to auction a 45-acre horse farm July 25 in Taneytown that is valued at $1 million but listed for $675,000.
"We've seen the popularity," she said. "People are becoming educated about it and why it works."
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