Cayuga lakefront auction reflects national estate-planning trend

CNY Business Journal (1996+), Aug 03, 1998

UNION SPRINGS--"I grew up in Gadsden, Alabama," says William Bone, president of the National Auction Group (NAG), by way of introduction. "And in Alabama, they auction everything. The people we brought here with us"--about a dozen NAG staff dressed in red-white-and-blue neckties--"they grew up with auction backgrounds. It's in their bones."

The venue was Howland's Point, on the shores of Cayuga Lake, close to the town of Union Springs. The owner of this 110-acre peninsular property, one John McDonald, had decided that he wanted to be certain of the true worth of his estate. And rather than posting "For Sale" signs and waiting several months or years for the sale to be completed, he decided on the convenience of a one-day event during which all property would be sold, no matter what price it fetched.

So amid cold drinks and sizzling kebabs served lakeside on this glorious summer day, knowledgeable NAG staff patiently and courteously guided visitors around the property. Those who wanted to see the lakefront portions of the parcels were taken by boat to survey what they might be tempted to bid on.

Before the big day, NAG and its agents had blanketed the region with publicity. "I was hoping there wouldn't be so many people here," mumbled one potential bidder, while others concurred that they had expected to see considerably fewer people in attendance. Potential bidders were required to bring a cashier's check in the amount of $25,000, thereby assuring not only that they were serious buyers, but seriously rich buyers as well.

By the time 20-year auction veteran and former president of the National Auctioneers Association Eddie Haynes stepped behind the podium, the place was buzzing with speculation about the final selling price.

The spotters took their positions, sleeves uprolled, whistles firmly between teeth. Haynes flourished a bottle of Dom Perignon, vintage 1990, a $200 bottle of wine, explaining that he would start the ball rolling by auctioning that first. All proceeds would go to the American Cancer Society, tax deductible, he added. His jaw loosened, his speech quickened, and the bids rolled in, starting at $100 and continuing incredibly on until one determined buyer silenced the room with a $2,500 bid. "Write it down!" Haynes declared, congratulating the buyer on his charity and good taste.

The entire property, seven parcels in all, sold for a total of $1,075,134 within a matter of minutes. The highest bid, for $440,000, was received on Parcel Number One--the parcel with the impeccable, 18-room Tudor mansion and the longest lake frontage. "We're extremely pleased with today's results," Bone exulted. NAG received a commission of 7.5 percent over the total sale price.

'True market value'

"Some uninformed folks often associate the word auction with distressed property," Bone says. "While monthly auctions on the courthouse steps have been around for years, the auction of lavish estates and mansions is still in the infancy stage." Still, Bone expects NAG alone will conduct around 60 estate auctions this year, with an estimated average sale price of $2 million per estate.

Although estate auctions have not yet reached the level of popularity that Bone would like, he cites several reasons why the popularity is bound to rise with increased publicity about what the process involves. There's something naturally appealing about it to people of means, Bone contends. "They like to control their own destiny," he says, "and following the crowd is virtually foreign to their maverick way of thinking.

"One of the most popular benefits," Bone continues, "is the time factor. In many markets the universe of potential buyers for a multimillion-dollar estate is quite limited. Yet tire kickers abound." Unless a Realtor carefully screens potential buyers, he adds, "the intrusion on a family's privacy can last for months, even years." With an absolute auction, "the seller knows that on auction day the whole deal is over, and the proceeds are received with minimal hassle and interruption."

Bone also points out one of the biggest challenges of the traditional real-estate sales process: Knowing how much to ask. "If the asking price is too high, traffic slows down. Too low, and the seller will always wonder if he could have received more. At an auction," he insists, "with a dozen or so enthusiastic and well-heeled bidders, the number goes up and up until true market value is determined."

Should the owner have an "absolute" auction or a "reserve" auction? Bone unequivocally recommends the former. In a reserve auction, the seller can refuse to accept the high bid if he feels it is not high enough. In an absolute auction, the highest bid automatically becomes the sale price.

"Absolute auctions typically attract the most bidders because of the 'lure of the bargain,' " Bone says. Ironically, he adds, this, in fact, results in the highest sale price as the increased number of bidders "drive the price to precisely where it should be."

The key to any successful auction, Bone continues, is "a massive and thorough promotional campaign, which typically includes advertising, direct mail, and public relations." NAG auctioned a spectacular 141-acre private island in the Chesapeake Bay near Cambridge, Mass. last fall, he says. "Prior to auction day, the event was reported on in more than 400 newspapers around the country." Also last year, NAG reports that it sold the Lloyd Bentsen family ranch for more than $6 million.