Spring is the time of year when farms and farmland often are sold. While many property owners and buyers go the traditional route of listing a property with a realtor and waiting for it to sell, another option is an auction. To learn more about what goes into buying or selling a horse property at auction we asked Trayor Lesnock of Platinum Luxury Auctions to give us some tips. While many of us won’t be selling or shopping in the $1-million or more property category, there are others of our group who have properties that easily fit into this category. And some property owners might be surprised at how your properties have risen in value over the years. For those of us with properties valued at less than $1-million, there are some words of wisdom in these answers to help you decide if you want to sell or buy a horse property at auction.
1. Please tell us a little about yourself and your business as it relates to horse properties.
As the owner and president of Platinum Luxury Auctions, I’ve enjoyed working with luxury property owners across the United States, and a growing number of those individuals are owners of horse properties. In fact, the sale of several, multi-million-dollar equestrian and ranch properties during the past two years has made a significant contribution to our growing portfolio of more than $330 million in luxury real estate auction sales. One highlight is the sale of the well-known Two Swans Farm in Wellington, Florida, which we sold for nearly $7 million during the 2013 Winter Equestrian Festival.
2. When should a farm owner who wants to sell consider an auction?
The honest answer is that any time is a suitable time to auction a luxury equestrian property. However, in most cases these sellers begin exploring the auction process once they have exhausted the traditional brokerage avenue. This point may come after six months--or even six years--which largely depends on the patience of the owner. Because equestrian properties tend to be especially unique and difficult to compare to one another, it is challenging to find their highest and best price using traditional sales methods. This leads to excessive listings periods--often accompanied by many price reductions. Savvy sellers generally elect the auction process when they decide they no longer want to expose themselves to the downsides of playing the waiting game, hoping for a buyer to surface. Our luxury auction process is based upon using an international marketing program to build a global audience of buyers, and funneling those buyers towards a defined date of sale in order to force those buyers to compete for a given property. While the success of our sales is not tied to any particular time of year, it certainly helps to consider aligning the timing of the auction promotion with any significant equestrian events in the property’s area, such as the Winter Equestrian Festival that is hosted annually in Wellington, Florida.
3. Is there a farm size or amount that the farm is worth that makes it more viable to have an auction than go with a regular sales route?
In general we do not accept any properties for luxury auction that have a value below $1 million, and the majority of the properties we handle are valued in excess of $2 million. The financial health of the property is also important, not just the price tag. Platinum only works with sellers who are not in any type of distress, and who generally have little to no debt on their property. From a performance perspective, there is a fairly direct correlation between the price point of a property and the success of the auction. While all luxury properties will certainly seek their own value through the auction process, the reason the most expensive properties perform best is a matter of simple economics: In the high-net-worth arena, the bidding audience is comprised of individuals who are simply more financially able, and thus more comfortable, playing the game, so to speak.
4. What should a seller know about listing and selling a farm at auction; please walk us through the steps from finding an auction firm to getting your money.
First and foremost, a luxury auction sale is a high-stakes process that requires a great deal of care and risk management. We therefore encourage every seller to approach the evaluation of a real estate auction provider just as they would approach the selection of a private wealth manager: In each case, millions of dollars are at stake, so do not skimp on your due diligence In this case, a seller should also focus on specificity. Does the auction provider understand not only the nature of equestrian properties, but also the nature of the buying audience? How many equestrian properties have they sold and what were the sales results?
Once a seller engages Platinum to consider the luxury auction process, our team spends a lot of time researching the given marketplace and assessing the property, formulating this information into a proposal that is provider to the seller. The goal of the proposal is to provide the seller with a candid analysis of the property and our expectations for a successful sale. This research and vetting process allows Platinum to identify potential barriers to a successful sale well ahead of time, and to discuss them in candid detail with the seller. This is also where our team declines many properties. As opposed to many traditional brokers, we do not look for “feather in the cap” properties that cannot be effectively sold.
Once a seller and Platinum mutually agree to move forward with an auction, Platinum’s team enters a very intense preparation phase wherein we build the international marketing campaign for the property. This process requires two to three weeks. While our team is building the marketing program, we also have two other preparation processes in motion to ready the property for the sale. First, we want to ensure the property looks its best, so we often have a contractor or handyman prepare a punch-list to address any cosmetic items that need cured. Second, our attorneys begin reviewing the property’s title, checking for anything that could cloud title or prevent a smooth sale. This is critically important for horse properties, as they tend to have more land, more standing structures, and quite literally more moving parts than the average residential property. Many are even used in part or in full as businesses. As such, there is a greater chance to encounter issues related to open permits, liens on title and other matters. At the conclusion of this multi-pronged preparation phase, we launch the international auction-marketing campaign, which generally lasts for five to six weeks. Depending on the property, a seller can expect anywhere from 50 to 200 visitors to the property during this time. As you can imagine, the seller should take care to be sure all of his animals and vendors are prepared to make the property presentable during these previews.
If the property does not sell during the five- to six-week marketing process, we conduct a live auction on-site at the conclusion of that period. Although auction day is an upscale affair, with red carpets, white tents and other nice touches, it’s also very much about efficiency. We have a tradition of starting the event with a brief auction for a bottle of fine wine or champagne with all proceeds going to a charity organization of the seller’s choice. Then, we move onto the auction of the equestrian property, which sells to the highest bidder in accordance to the terms of the sale. On the “fall of the hammer,” as we say, the high bidder makes an immediate, non-refundable deposit of 10% of the purchase price, then has 30 days to close on the balance due. There are no contingencies and no negotiations, with all sales occurring AS-IS. At this stage, it’s our policy to then leave most of the “heavy lifting” up to the attorneys, so as to ensure a smooth and timely closing.
5. What should a buyer know about purchasing a farm at auction? Please walk us through what the buyer should do before, during, and after the auction.
To really oversimplify the matter, an auction buyer should simply be ready to buy, and to close quickly. While most of our buyers either pay cash (or pay cash and subsequently place a loan on the property post-closing), any buyer wishing to use financing should know his exact financing parameters in advance of the auction. We do not allow spectators at our auctions, and all bidders must register in advance by putting forth a certain deposit and signing the auction terms of sale, so a buyer needs to understand that attending the auction is a very sincere engagement. While buyers may perform all the due diligence they wish on any one of our luxury auction properties, they must do in advance of the auction date, so time is of the essence. Buyers should not hesitate to have all questions and concerns--if any--resolved prior to the auction, as the bidding process moves very briskly on auction day, with no time for debate or discussion. It’s not uncommon for one or two bidders at each auction to be surprised at the pace with which other bidders are bidding. One of our recent equestrian auctions is an excellent case in point: One of the bidders--a very wealthy, successful businessman--was literally slacked jawed while his bidder’s paddle sat in his lap, as the bidding opened with two eager bidders racing through the first $2.5 million in bids in a matter of only 20-30 seconds.
6. Many people are worried that they will get “bid up” at an auction. How can someone avoid that scenario?
This is much like a runner asking how he cannot be outrun in a race. The simple answer is for him to run the fastest! Kidding aside, when a bidder decides he doesn’t want to compete with other bidders on auction day, a common strategy is for that bidder to put forth an offer prior to the auction in the hopes the seller accepts it in lieu of the auction day sale. We sell 10-15% of our properties in this manner (that is, prior to the auction date), although we have begun to see more of these sales recently, perhaps due to the increasing health of luxury markets overall. During a live auction, however, a bidder simply cannot control what the other bidders will do, other than of course outbidding them. That said, a bidder can always control his own level of participation. If your price limit is exceeded, simply stop bidding. The tremendous benefit of a live auction for a bidder is the complete transparency of seeing what your competition is doing in real time. This contrasts with the traditional real estate process wherein a broker may tell a buyer that there is a competing offer, but neither the amount of that offer nor the person behind it can be disclosed.
7. Can you purchase a property privately that has been listed at auction?
The short answer is yes. Every auction property Platinum presents has the potential to be purchased prior to the scheduled auction date. As mentioned previously, 10-15% of our properties are sold in this fashion, although that percentage has been increasing as of late.
8. Anything else you think should be mentioned?
Equestrian properties are certainly one of the most unique luxury property classes, and unfortunately, being unique doesn’t always lend itself to a fast, easy, or fair-market sale in the traditional real estate sales process. In contrast, an auction is where unique assets thrive. Auction sellers can be confident that the process delivers them a real, fair-market value for their property because that value was derived from a competing pool of qualified buyers, who were drawn to the property using an exhaustive promotional campaign. Put simply, no stone was left unturned in sourcing the marketplace for the right buyer. After all, there is a reason the world’s largest and oldest auction houses have been using this process to sell some of the world’s most unique and valuable possessions for hundreds of years.