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Auctions– Efficient Tools for Selling your (Luxury) Home

Once considered the dumping grounds of depreciated luxury homes, auction houses have become quick, efficient house-selling machines. The sale of homes worth over a million dollars has increased 8% since last year, while sales in homes in the $250,000-$500,000 range have seen a 17.4% increase. Auction houses aid these sales and get the most value out of the homes by bringing connections. The auction houses have strong ties with a variety of advertisement and promotion mediums. Using these firms, they form weak ties with potential customers, who have developed strong ties with the same promotional mediums (often after repeated exposure). This action is predicted by the Strong Triadic Closure Property. Creating a web of these weak ties increases the likelihood that the homes will be bought for the owners’ asking prices, if not more.

While it may be a gamble to buy or sell a house on auction, both homeowners and buyers can walk away satisfied with transactions, given proper due diligence on properties and reasonable minimum bids. The reason why auctions, especially in the luxury home market, carry a negative stigmatism is because the winning bid may not meet the owner’s asking price. However, auctions save the owners the time of waiting normally waiting for a seller, which is often times years. Furthermore, the auction house can bring together enough interested customers that the true value of the home is accurately recognized by the market. For example, the auction of the Elk Ridge Ranch in Edwards, Colorado, was set back nearly a month to accommodate buyers who wished to finalize their valuation and thus bids of the property. Since the homeowner is allowed to set a minimum bid at which the house can be sold, they can guarantee that the buyers will pay the minimum perceived value, regardless of these valuations. If and when the property is sold, the seller will receive an economic profit of the final sale price and their lowest valuation of their property. Assuming the buyer did not over bid and thus have winner’s curse, they will obtain an economic profit equal to the difference between their perceived value of the property and the highest bid (the second highest perceived value). Auctions have become effective tools which can provide economic profit to all parties involved.





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September 2015