It’s every luxury homeowner’s fantasy: your house is worth millions, maybe even tens of millions! Just slap a hefty price tag on it and voilà, wait for the rich and famous to come knocking. Right? Well, as some wealthy sellers have learned the hard way, reality is a tad more complex.

Take Randy and Robin Landsman, for example. This Manhattan power couple had been trying to unload their 3,300-square-foot Tribeca penthouse—originally listed for a cool $12.2 million—for over a year. The penthouse was no ordinary apartment; it boasted over 2,000 square feet of terraces, a floating staircase that seemed to defy gravity, and even a private elevator to avoid those awkward elevator small talks.

After several price cuts and no serious bites, the frustrated homeowners decided it was time to cut their losses and try the auction route. Big mistake. Their triplex eventually sold for the paltry sum of $5 million—less than half of what they had hoped for and just a smidge more than what they paid two decades earlier. “It was obviously a stupid mistake,” Randy admits, probably wincing at the memory.

Auctions: A Desperate Last Resort

The Landsmans aren’t alone. Once associated mainly with foreclosures and art sales, auctions have become the desperate high-end homeowner’s option of last resort when they can’t find a buyer to meet their lofty price tag. And the results aren’t always the stuff of dreams.

Take La Dune, the oceanfront Hamptons estate that first hit the market for a staggering $150 million. When the auction hammer finally came down, the final price was a mere $89 million—a far cry from the owner’s dream of breaking real estate records. Or consider The One, the Bel-Air megamansion that was supposed to list for half a billion dollars. It ended up selling at auction for just $126 million. Ouch.

“I will tell the seller, ‘You’ve been on the market for X period of time at three different price points. Why hasn’t it sold? It’s obvious why. Because it’s mispriced,'” says Misha Haghani, founder of real-estate auction house Paramount Realty USA. “Almost every owner thinks their home is better than it actually is.”

It’s like your eccentric Aunt Mildred, convinced that her ceramic cat collection is worth tens of thousands. Bless her heart, but the rest of the sane world sees it as a collection that might fetch $50 at a garage sale.

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The Harsh Reality of Overpricing

The reason auctions have started to pick up steam is that many luxury homeowners are under the impression that their properties are worth far more than what buyers are willing to pay. Emboldened by televised sale prices or record-breaking deals in their neighborhoods, these sellers come in with fantasy asking prices. When offers fail to materialize, they’re forced into repeated price cuts.

Take, if you will, former “Real Housewives of New York” star Sonja Morgan. Her Upper East Side townhouse had been on and off the market for a decade, once listed as high as $10.75 million and at another point as low as $7.5 million. She finally threw in the towel, auctioning it off for a paltry $4.595 million. Ouch, again.

And it’s not just the one-percenters who are guilty. Even regular folks can get caught up in the hype and overvalue their homes. I once had a neighbor who listed his 1,200-square-foot bungalow for $650,000, citing the “hot market” and the fact that his cousin’s friend’s dog-walker’s nephew’s place down the street sold for $700k. Needless to say, it sat on the market for months before he had to accept a $550k offer.

Unique Properties, Unique Challenges

So what’s behind the mania for auctions in the luxury real estate world? For one, auctions offer a definitive end date, versus the endless purgatory of a traditional listing. Auction houses also promise to market properties to a far larger, more diverse pool of potential buyers, both nationally and internationally.

“The properties that we represent that do really well at auction, they’re not fungible,” says Scott Kirk, chief executive of Interluxe Auctions. “These properties have extremely unique attributes about them that make them very difficult to comp.” We’re talking about homes like a White House replica in California, complete with its own Oval Office and Rose Garden. Or a treehouse-style home built by former NFL star Drew Brees, perched 15 feet above the ground inside a forest. Or a castle owned by baseball great Derek Jeter, featuring a medieval tower and rooftop battlements. Your average McMansion this is not.

The Allure of Auctions: Timing and Marketing

For many sellers, especially those who have tried and failed to sell their homes through traditional means, auctions can be an attractive proposition. The set timeline provides a sense of urgency, and the extensive marketing promises to reach buyers who might not be accessible otherwise.

“When they come to us, hopefully they’ve had some sense knocked into them,” says Haghani. “They’re tired, they’ve had enough. They say, ‘As long as the offer is decent, as long as it’s fair, I’m going to take it even if it’s not exactly what I wanted before.'”

When Auctions Don’t Deliver

But all the marketing muscle wielded by auction houses sometimes yields results that don’t quite live up to the hype. Derek Jeter’s castle-like estate in New York’s Greenwood Lake area, for example, failed to sell with a $6.5 million reserve price at auction, eventually going for just $5.1 million. Oops.

And it’s not only the sellers who can end up disappointed. Buyers who get caught up in the auction frenzy can also regret their impulse purchases. Just ask financial services executive Erik Stern and his wife Michelle. They believed their East Hampton estate was worth at least $20 million. After being assured of “a high level of interest” by the auction house, the couple watched in horror as their modernist masterpiece sold for a mere $15 million. “I think I vomited and blacked out,” Michelle recalled.

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The Market Disconnect

Pricing a multimillion-dollar home can be more art than science. In August, 49% of luxury homes sold below their initial asking price, with an average discount of 9%, according to Zillow. In auctions, the discounts can be even steeper.

Auction companies often encourage sellers to proceed without a reserve price to maximize interest and momentum. However, this strategy can backfire spectacularly if the bidding doesn’t reach the seller’s expectations. Some sellers see the writing on the wall and cancel the auction altogether when early bids fall short.

Time for a Reality Check

So, what’s the moral of this story? Perhaps for luxury homeowners, it’s time to take a deep breath and get a reality check on what their homes are truly worth in today’s market. Relying on outdated comparisons or unrealistic personal valuations is a recipe for disappointment.

And for the auction houses, there’s a tightrope to walk between the allure of glamorous exclusivity and setting realistic expectations. Overpromising and underdelivering is a surefire way to lose both buyer and seller confidence.

At the end of it all, while auctions can be a useful tool, they’re no silver bullet. As Randy Landsman learned the hard way, sometimes the only thing you end up auctioning off is your pride.

The Takeaway

For both sellers and buyers in the luxury real estate market, due diligence is key. Sellers need to ground their expectations in reality, perhaps setting aside the dream of making headlines with record-breaking sales. Buyers should be cautious of getting swept up in auction hype, ensuring that the property’s value aligns with the price tag.

In a market where uniqueness is both a blessing and a curse, understanding the true value of a property is more important than ever. Whether you’re selling a modernist masterpiece or a castle fit for a king, remember that a home is ultimately worth what someone is willing to pay for it—not necessarily what you believe it should fetch.

So, before you decide to take your luxury home to auction, ask yourself: Is it worth the gamble? Because in the high-stakes game of real estate, sometimes the house wins, and sometimes you end up paying the price.

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