Real estate auctions: boon or boondoggle?

Are high-profile, multi-property real estate auctions the answer to a prayer for homeowners frustrated at a lack of interest from prospective buyers, or are they simply a too-good-to-be-true scheme that leaves sellers poorer (but possibly wiser) and produces a windfall for the auction company?

The latter would appear to be the case based on a number of real estate auctions held this Spring across Florida, including the April 18th auction of several dozen Vero Beach properties organized by Thorpe / Sotheby's and Daniel DeCaro Auctions.

As a jazz group played a lively version of "I Feel Good" and a half-dozen shills tried to work prospective buyers into a bidding frenzy, DeCaro succeeded in selling a couple of $2 million plus properties, as well as an assortment of lower-priced developers' closeouts both on the island and across on the mainland..

But the handful of top-drawer luxury properties put up for sale at the auction drew only a smattering of bids that did not even come close to reaching the sellers' reserves.

An estate at the south end of the Vero Beach barrier island (shown at left), which Thorpe / Sotheby's broker Michael Thorpe said had a $16 million appraisal just this past October and which was auctioned with a $9.6 million reserve, drew a high offer of $5.4 million in not-very-spirited bidding. Not sold!

An oceanfront home in Bermuda Bay in Indian River Shores, with a $6.9 million reserve, drew a high-bid of only $4,350,000. Two oceanfront homes in Castaway Cove, on one of the island's best beaches, failed to sell with high bids of $1.5 million and $1.6 million.

But auctioneer DeCaro paced the stage, frequently coming down into the audience to keep the bidding going, and the day was not without sales

The first home put up for auction, a 15-year-old oceanfront residence on Reef Road near The Moorings, sold for $2.45 million; a new spec home on Marsh Island sold for $2.4 million (update: this sale subsequently fell through); and a river-front home in Marbrisa sold for $1.65 million.

DeCaro claimed to have spent $3 million advertising the auction (a sum most Realtors view as wildly overstated), but claims of that kind stem from the fact that it is the property sellers – and not, as is customarily the case, the Realtor – who pay for the advance advertising.

Unlike a conventional listing arrangement, where you don’t wind up paying anything if the Realtor does not succeed in selling your property, you pay a not inconsiderable advertising fee up front if you want your home to be included in a multi-property auction.

That means if the house doesn’t sell, it is you – not the auction company – that is out of pocket for the marketing.

And while a Realtor may spend a fair sum marketing your home with no assurance she will ever collect the customary 6 percent commission, the auction company – without spending a penny on advertising -- collects a 10 percent “Buyer’s Premium” on any sales actually concluded, meaning the buyer pays 10 percent more than the price he bid on the property. Not a bad profit for the auctioneer.

Beyond the auctioneer, the spring auctions across Florida would suggest that this approach can benefit two types of interested parties.

Developers facing a cash squeeze can quickly raise some money by dumping some of their inventory, and for any buyers attacted to the new houses or condos being dumped, good buys are clearly possible.

The auction of condo units in Somerset Bay by DeCaro is a case in point. The developer, who had been trying to sell units for $1 million and up, allowed buyers to purchase five of them for prices ranging from $550,000 to $625,000.

That turns these units into a quick $2.7 million which presumably is helpful to the developer. And it is a fast quarter of a million for DeCaro. It also, no doubt, was a good deal for the buyers.

But since that now establishes the market value of units in this luxury condo community, residents of Somerset Bay who purchased their units at the original prices can't be feeling too happy.