Spotlight On: Dan Mahaney, AAREDecember 6th, 2011 by Ori Klein
Spotlight on . . .Dan Mahaney
This month, we’re putting our Spotlight On Dan Mahaney, a full service Auctioneer of luxury, land and commercial specialty properties. With the rise of luxury homes hitting the auction block, we set out to cover the possible causes and trends stimulating the surge in this area of the market.
PA: Tell us about yourself.
DM: I’m an Auctioneer of luxury homes and legacy grade ranch properties. I’ve been in business since 1993.
PA: We see from your website that you cover the nation coast to coast. In your opinion, what’s the hottest area right now for real estate auctions?
DM: I would say that by far the hottest market is Seattle. They’ve got employment opportunities, high network, high property values, and a limited amount of building space just because of the ocean on one side. It is by far the strongest market. On the last auction I did out there, the house was half falling down and yet we had 60 registered bidders. We were doing the auction inside because it was raining, and I was worried the house was going to fall in because we had so many people in there. It was probably worth $250K, and yet it sold for about $380K. It’s a different price point than New York but the principle is the same. There is just a lot of money out there – I think a lot of it is driven by hard money. Sixty percent of people out there, even with seller credit, use hard money to buy properties to flip. I just don’t see that anywhere else in the country besides Seattle. Florida is very tough unless you’re in that lower price bracket of $250K or below. The high end is still very slow because there’s no urgency to buy, there’s just so much for sale out there. For Wisconsin, it’s a good market at the right price point – again, if you go too high or it’s a huge property, then it gets tough but it’s an active market. Madison is a great area – there are a lot of jobs there. Texas is very strong. Population is high, income is high, and you’ve got all kinds of properties – high end, low end, commercial, ranch, etc. Again, it’s demographics.
PA: We are seeing a tremendous rise in luxury properties sold at auction. Can you tell us why?
DM: I think it’s the trickle-down effect. A few years ago people in that price bracket weren’t calling us because there was still a market behind it. But as the strain on homeowners began, it started at $100K, then went to $300K, then $500K, then $700K, now a million. It’s just the trickle-down effect. The recovery is going to be the same thing – it’s the $100K properties that will recover first, then the $300K, then the $500K – the luxury will be the last to recover because they were the last to fall. There were so many people that overspent on what they could afford just because the financing was so easy back in those days. Two million dollar properties were being sold to people who made $60K a year. Then they just couldn’t make sense of the numbers and they got stuck. I think the people that can afford the properties they’re in are going to sit on them because of the competition. It’s the supply and demand. Everything that I’m seeing across the country is showing that people would rather have a well-located, well-appointed home even if it’s 5,000 square feet instead of a 15,000 square foot mega-mansion that costs five thousand dollars a month to cover. That’s what I tell every seller – everybody that I meet that is selling a luxury property says they want to reduce their exposure for capital as well as upkeep. I tell them they have to understand that the next person who is looking to buy this property has the same feeling that they do. You have to give them a reason to come buy it, otherwise why would they want to pay a retail price for something that everyone is kind of running from these days.
PA: What about the future of luxury properties being sold via the auction method?
DM: I see this method continuing for the next 3-5 years until the inventory is thinned out.
PA: Geographically, what areas are doing better for luxury properties? What areas are doing worse?
DM: California and Seattle are doing well, and I’d say Florida and Nevada are doing worse. With Florida, there are no jobs down there unless you’re in the hospitality or real estate business. There are no jobs that pay big money. The taxes are high and the insurance is extremely high. The only person buying in Florida is one who works a blue-collar job and is buying a $150K property or below, or someone from the Northeast or Midwest that’s looking for a second home. And they’re in no hurry to spend any money because that market is still in free fall, so even to do an auction without a reserve, there’s no guarantee that anyone is going to show because the demand for that product is that low. Nevada is the same way. Years ago everyone was moving out there because it was the thing to do. But when you sit back and look at it, you wonder what other jobs are out there besides being a blackjack dealer or driving a limousine for Harrah’s casino. There’s no employment basis that’s going to drive the market. Yet look at Seattle – Seattle has Boeing, tens of thousands of people employed, and the average income is $90K, which is a big number. Seattle also has Microsoft. Seattle has real jobs and real money, whereas with Florida and Nevada, they’ve catered to that retiree that works part-time at McDonald’s.
PA: What about seasonal? When is the best time to sell a luxury property?
DM: Summer is the strongest season for Colorado. Everybody thinks that the peak season to sell in Colorado is winter just because it’s ski season, but there’s more people that travel there in the summer than the winter. And that’s where most people from Texas with money go for vacation to get out of the heat. In the winter, obviously states like Arizona and Florida. The toughest part about a Florida property is that if you auction a property after $500K-$700K, you have a limited marketing budget. That buyer with money is coming from New Jersey or Michigan or New York or Chicago, and the cost to market doesn’t go that far when you have that limited amount of a budget. So it’s easier to sell a property in February or March, which are the peak months when all those people are there and you can advertise it locally versus having to advertise regionally or nationally. The Midwest is strong in the fall. Between Wisconsin and Michigan, every year at this time I always get flooded with calls – when you get that first freeze up there, everyone starts to say that they don’t want to keep this property through the winter. Their sense of urgency skyrockets, then it just comes down to if you have enough weekends or days in the year to schedule all of them. Their sense of urgency goes up and you have a small window to close that deal – otherwise I just have to say I’ll call you in March.
PA: Is the marketing process different for luxury properties?
DM: Yes. We are seeing a large influx of buyers from Asia and Canada as they are flush with cash, so our ad campaigns are always changing. It’s very true in California because the economy in Asia is so rough, they’d rather invest in the U.S. real estate market because there’s such a huge opportunity. They are extremely flush with cash. Five to seven million dollars doesn’t phase these international buyers – they think it’s very reasonable. It’s just a matter of finding the right product for them. They have the money and they own the market right now.
PA: Tell us about some of your more recent deals: Biggest dollar amount ? Highest number of bidders? Any crazy stories?
DM: There was a 25,000 square foot home in San Clemente, California. It was the largest square foot home in the MLS on the market. It had been on the market for about three years, and it had started around seven million dollars. The family had decided they wanted to sell – it was 17 bedrooms, almost too big. We actually had a lot of people who owned drug and alcohol rehab centers in California looking at it – because it was that big it made them logical buyers, but the neighbors were upset saying that they didn’t want a center like that in their neighborhood. Everyone was calling me saying we want this, we don’t want that. It was a very interesting sale and it was very well-received. The sellers were very motivated. We ended up having 60 bidders and it sold for 3.3 million. When you think about it, a 25,000 square foot home selling for 3.3 million is a sign of the market. Back in the day, it would’ve brought ridiculous money, but it just tells you that people are shying away from those multi-thousand square foot properties just because they really are a lot of work. This particular house needed a million dollars worth of work just to bring it up to speed, and that’s just doing the deferred maintenance that it had on it.
PA: How many luxury property deals do you look at versus actually take on for auction? Why would you turn down a deal?
DM: 1 out of 20 will turn into an auction. The rest either have too much debt on the property or are not prepared for the upfront auction advertising.
PA: As it relates to market price set by a broker or a BPO, what are you seeing in final purchase price at auction?
DM: It is all relative. Some agents start listing prices so high that it is difficult to gauge an accurate price. We still feel the County Assessed value carries the highest truth. Depending on the area, most homes are selling around 90% to 100% of assessed value.
PA: What percentage of deals that you work on have a buyer’s agent? A broker’s agent?
DM: About 15% have a buyer’s agent. Approximately 35% have a broker’s agent.
PA: Do you have any tips for luxury sellers?
DM: Be realistic and understand the buyers motivations. Sellers have got to be willing to listen to the market. You need to put your purchase cost of that property aside and be willing to listen to what the buyers are telling you. But that’s hard in this price bracket. A guy that has a three, five, or seven million dollar house didn’t get the house by being stupid. These owners are very educated business men that know the drill, and that can make them less willing to listen. On one of the properties that I sold, the guy started a company in California and took it public, made a lot of money, then built a monument to himself in Texas. It made sense for him but when you look at the property, it didn’t make sense for anyone else in the market. My biggest challenge in that whole sale was bringing him to the ground that he made a bad business decision, because he was a guy that had never made a bad decision. His wife knew it – she’d tell him ‘Listen to Dan – this is what it’s worth’. But he kept saying no, thinking he had seven million in it and should get six or seven out of it at least. And it was only worth 3 million on a good day. It was more his ego that he made a bad decision than it was common sense. With some people you can’t break that out. He’s got the money to sit on it and he’s gonna prove it wrong just to save his reputation or ego. But you’ve got to be willing to listen to what the buyers and the market are saying.
PA: What types of properties do you specialize in?
DM: Legacy grade ranches and luxury residential are our two main targets. I’ve got a big deal out in Idaho for the bankruptcy court that’s 330,000 acres. Those trophy type ranch properties still attract a lot of buyers because the guys with money will always have the money, and they like those recreation-type properties. They make sense because they have log homes on it, plus all the bells and whistles. Lots of acreage really pumps guys up. It makes sense because land is lower priced today. A lot of guys are making sense of it – it’s a fairly easy asset to liquidate compared to some other things.
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