While auctions usually result in a sale -- at Grand Estates the success rate is 94 percent -- they can bring about hefty price reductions from the original listing prices.
"Many sellers have unrealistic expectations of the worth of their homes," said Chris Longly, a spokesman at the Overland Park, Kansas-based National Auctioneers Association.
Half Original Listing
Jack Gerlach, who sold his Malibu home in an auction 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 said. "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's 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 renovate with features such as white marble imported from Greece -- were "significantly below" the value of the house, he said. Gerlach decided last year to auction it, which resulted in a sale in June 2010.
Battle to Top
"Auctions draw in a huge amount of people," Gerlach said in a telephone interview. "You always have that dream that two people will walk in" and "battle each other to the top," he said.
Most auctions at Grand Estates have fetched between 80 percent to 120 percent of the tax value of properties sold during the past 18 months. Tax values are often well below the prices real estate sold for during the peak years of 2005 to 2007, said Fitzgerald of Premiere Estates.