Have you ever wanted to live in the lap of luxury but didn't think you could afford to do so?
Well now might be the perfect time to buy your very own mansion — marked down at auction.
With the real estate market struggling to stay afloat, more and more affluent sellers are turning to auctioneers to sell off their homes. And we aren't just talking about people who are facing foreclosure.
"Most of the people who have high-end homes, they buy their antiques thorough auction, they buy their airplanes through auction, they buy their classic cars through auction. So they are used to that venue of sale and they don't look at it as a distressed type of thing," said Daniel DeCaro, whose Florida auction company has seen a spike in business.
DeCaro said that back in 2003, 2004 and 2005 — when the Florida real estate market was on fire — he was selling plenty of high-end real estate.
But today, auctions have a new appeal: buyers who pay in cash.
Most banks have tightened their lending standards, leaving some sellers to wonder if their buyer will get approved for a mortgage. With an auction there is no such worry.
Homes at auction are typically purchased "as is." So if that water heater is broken or if you find termites: too bad. Deals close within 30 days and the purchase price, plus a fee to the auctioneer, is paid in full.
DeCaro said that such terms are often appealing for sellers, especially in today's market where a lot of traditional deals don't go through.
For the buyer, the advantage is the ability to name their own price.
For instance, take a 6,300-square-foot home in Scottsdale, Ariz. being sold by Eric Nelson Auctioneering, of Las Vegas.
It was originally listed for $3.2 million. Now the opening bid for the 4-bedroom, 5-bathroom house will be $1.5 million. Another home in the same area was originally listed for $1.85 million and now carries an opening bid of $800,000.
The one holdout from the auction market, DeCaro said, were new home builders.
"They felt as though it would taint them," he said, adding "That stigma is now gone."
Even so, the bargains people find on million-dollar homes can sometimes come as a result of a foreclosure.
In normal market conditions, it's "very, very rare" for luxury properties to face foreclosure, said Rick Sharga, the vice president of marketing for the California-based research firm RealtyTrac.
"You almost never see these sorts of properties in foreclosure. It speaks to the severity of current market," he said.
In this market, he said, "you're almost definitely looking at the need to discount the property in order to sell it. … That's true whether you're dealing with a townhouse or a mansion."
A Tough Market
From California to Illinois to Georgia, RealtyTrac has seen properties once valued above $1 million being listed for hundreds of thousands of dollars less.
"It comes down to market realities," Sharga said. "If you want to get out from under that house, you're going to be at the mercy of whatever the market conditions are at the time, just like everybody else."
Of course, today's seven-figure properties aren't necessarily as impressive as they once were.
"A million-dollar property isn't quite the exclusive, luxury mansion that it used to be," Sharga said. "Some of these properties are in foreclosure because they were overvalued to begin with."
Not all foreclosed mansions hit the market right away. Rather than letting luxury properties sell for large discounts, bankers can opt to hold on to expensive properties with the intent selling them for a higher price later on when, they hope, the market recovers.
Holding the properties costs the banks, which are responsible for the home's insurance bills and property taxes.
"Each property becomes sort of its own little economic decision," Sharga said. Banks have to determine, he said, "whether it's cheaper to discount it up front and get the property off their books or keep the property on their books longer. … It's not as simple a decision as you might expect."
If you plan to buy a home at auction, beware. There are several pitfalls.
The biggest problem is often a very short window from the time a property is listed for sale to when it's auctioned. That means that potential buyers have little opportunity to investigate what they are bidding on.
There is little time to do a title search, check for unpaid back taxes or learn about the quality of the property. (As the new owner, you could be responsible for outstanding tax liabilities.)
And don't expect to take out a mortgage for the house. Most jurisdictions require payment in full in cash at the time of the auction.