Could Auctions Become the New Norm for Luxury Home Sellers?
As Canada’s housing market continues to heat up, blind bidding wars remain the norm, and, unfortunately, buyers face a lack of transparency as they have no idea how much others are willing to pay for a property, often leading to buyer frustration.
And, while sellers may rejoice at the opportunity to sell their property for above asking, these same sellers might also miss out on receiving the highest-possible bid offer to the lack of transparency for buyers.
As such, auctions are becoming more common, as they can often generate significant buzz and draw interest that a property might not receive otherwise, leading to a higher selling price than through the normal MLS/listing process, according to Century Auctions.
This happens to be the case for a $6.5-million home in Kelowna, BC that will be heading to the auction block next month.
Named Avanti on Hobson, the property is a Mediterranean-inspired mansion in one of the region’s most sought-after neighbourhoods and features 22-foot cathedral ceilings, seven bedrooms, and nine bathrooms — all spread over 10,000 square feet.
But let’s not forget about the pool, two garages, and the incredible custom-designed kitchen — putting the home in a league of its own when it comes to Okanagan real estate.
According to the Association of Interior Realtors, the average price for a residential home in Central Okanagan hit $996,331 in June, a 33% year-over-year gain, as residential real estate sales across the region are at a record high despite low inventory of listings.
At the same time, the luxury home market is still going strong, as suggested by the Avanti on Hobson listing, which will be auctioned through Precision Real Estate Auctions with no reserve price starting August 16. This means that there are no minimum bids or reserve prices, and the home will be sold to the highest bidder on August 19.
According to Precision Real Estate Auctions, in the past, real estate auctions were considered something that desperate sellers choose, or for properties that the bank owns. However, modern-day real estate auctions include a much wider range of sellers, and over the last few years, the number of homes sold by auction has steadily increased.
OREA argues in jurisdictions where auctions are common, prices have risen as “auction fever” leads to higher bids.
“Unfortunately, for too many, the current real estate market is a frustrating game of musical chairs, with more and more people circling a fewer amount of chairs,” said OREA CEO Tim Hudak.
“The experience can be discouraging: a hopeful buyer competing with dozens of bidders for homes they can barely afford, and repeatedly losing out. They’ve lost sleep wondering whether their own bid is uncompetitive or more than they really need to pay. It’s not surprising some may wonder whether there’s a different way,” said Hudak.
The association says auctions could also mean buyers would have to share private information during the process, such as a need to sell their own home to finance the purchase of another or how much they can afford for a down payment with a collection of strangers around the table.
However, while auctions might seem like an ideal solution for the average home, particularly a home that a seller is struggling to sell, some argue that they’re not be the ideal solution for higher-end properties.
Kevin Crigger, Broker of Johnston & Daniel, a Division of Royal LePage Real Estate Services Ltd., Brokerage, told STOREYS that Toronto has an incredibly robust luxury sector and that throughout the pandemic the city has seen the highest number of luxury home sales in history, with some trading off and on the market — through realtor relationships, and through reaching out to qualified colleagues who work in that same realm.
“We were able to transact quickly, quietly, and efficiently. However, one challenge in the luxury sector is that people with high net worth have a great value for privacy. Auction processes, with my experience in our market, [have] had limited penetration in the luxury market because they go against the key elements that these sellers are looking for — privacy.”
Crigger explained that on the MLS system, you can see that there are properties that sometimes trade in a matter of hours or days, but as you get into higher price points, the pool of buyers gets smaller and days on the market typically get longer.
By opting to sell through an auction approach, you’re limited to who is bidding on a specific day and a time to bid. As a result, a seller could potentially miss out on a larger pool of buyers.
“To pull a large volume of people in, I don’t think it’s necessarily the best metric for success. If you purchase a 20,000-sq.ft home, it’s not a snap decision. It requires the services of an experienced realtor to start with the neighbourhood, hammer down the type of home you’re looking for, and as you get into higher price points and larger homes, the realtor gets into the style of the home and navigating that,” said Crigger.
“In my experience, given the magnitude of a luxury property, having a much more personalized bespoke and targeted campaign has generally lead to better results. If the goal is speed and not necessarily value, I think auctions can certainly provide an opportunity for a segment of the population,” added Crigger.
Though, Precision says auctions can create competition for a property and help it sell at top market value. And, if you’re looking to sell a luxury $6.5 million home in Kelowna, for example, this doesn’t sound like the worst outcome.