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Andrew Osinski felt the time had come to say goodbye to the waterfront home in Darien, Conn., that he had owned since 1994. His wife died eight years ago and his four children are grown up. So Osinski, a former managing director at Lehman Brothers, listed the five-bedroom, seven-bathroom property on Long Island Sound, which he bought for $1.52 million and then rebuilt, in May 2010 for $12.5 million. “After I listed the house last year, it quickly became stale,” says the 67-year-old former Wall Streeter. “I’ve been a trader all my life. There’s nothing worse than sitting on a stale position.”
To unload the property, Osinki turned to New York-based Concierge Auctions. The home, on which Osinki had a $5 million loan, eventually sold at auction for $8 million in June—at the low end of the range set by the company. “The market has changed,” Osinki says. “I asked too much, as we all do. I hung on for a long time. But this is it. It’s time to move on.”
Real estate auctions, long used in the sale of foreclosed properties, are becoming more popular among wealthy homeowners to drum up interest for mansions that have languished on the market. In exchange for a quicker sale, many sellers are accepting price cuts of 50 percent or more. Stacy Kirk Reich, president of Grand Estates Auction, based in Charlotte, says only about 12 percent of the auctions it runs are the result of financial distress. “Sellers will come to us for various reasons; maybe the death of a loved one or a divorce, but most frequently because they are reallocating wealth to other locations,” says Kirk Reich. Her company, which specializes in auctions of properties valued at $1.5 million to $10 million, gets an average of 276 inquiries per listing and 16 bidders per auction.
Homeowners are seeking new methods for selling their properties as the U.S. economy shows signs of sputtering and property prices show few indications of trending upward. The S&P/Case-Shiller Indices, a gauge of home prices in 20 U.S. cities, fell 4.5 percent in June from a year earlier.
The number of sales at Premiere Estates Auction, which specializes in luxury properties, rose 30 percent last year, says Anthony Fitzgerald, a broker with the Manhattan Beach (Calif.) company. “The actual dollar amount of homes auctioned off has also increased by about that much,” he adds.
Premiere Estates has been tapped to sell the beach property owned by William Chadwick, a managing director at investment bank Chadwick Saylor. The home sits on “Billionaire Beach,” a stretch of Malibu where Jeffrey Katzenberg, chief executive officer of DreamWorks Animation SKG, and Paul Allen, co-founder of Microsoft, also have homes. At an open house in early August, about a dozen people at a time toured the 10,500-square-foot, 9½-bathroom estate, which has five fireplaces, an ocean-view gym, a home theater outfitted with leather recliners, and a 75-foot lap pool.
The minimum bid on the Chadwick property is set at $22 million. With an original listing price of $65 million in 2008, it is the highest-priced home ever to go to auction, says Fitzgerald. Chadwick did not respond to a voicemail left at his office.
While auctions usually result in a sale, they can bring about hefty price reductions from the original listing prices. Most auctions at Grand Estates have fetched between 80 percent and 120 percent of the tax value of properties sold during the past 18 months. However, tax values are often well below the prices real estate sold for during the peak years of 2005 to 2007. Jack Gerlach, who sold his Malibu home in an auction that was conducted by Premiere Estates last year after it had been sitting on the market since 2008, got $2.6 million for it—less than half the original listing price of $5.5 million. “During those two years my house was on the market, I was, in a way, at a standstill,” he says. “To use the auction process was a decision to move forward.”
Gerlach, 32, a residential real estate developer, is in the process of building a 10,000-square-foot Mediterranean home in Malibu for his wife and himself. To move ahead with the “dream project,” which he’s planned for six years, as well as two investment properties he is developing in the Hollywood Hills, he wanted to unload his loft-style house, which has floor-to-ceiling windows.
His loans on the property—which he bought for almost $1 million and spent $600,000 to upgrade with features such as white marble imported from Greece—were “significantly below” the value of the house, Gerlach says. So he decided to gamble on an auction sale. “Auctions draw in a huge amount of people,” says Gerlach. “You always have that dream that two people will walk in” and “battle each other to the top.”
The bottom line: Tired of waiting out the market, estate owners are putting their homes up for auction, even it if means accepting a 50 percent discount.