Buying Beverly Hills Season 2: Timeless Lessons Learned

I am happy to report that I am solidly on the road to recovery! At this point I’m feeling almost like my old self again, and grateful to be restored to reasonably good health. But while I was laid up, I indulged in record-breaking TV binge-watching. It was during this time that Season 2 of Buying Beverly Hills dropped, and being a big aficionado of real estate reality TV, I streamed the whole season in a couple of days.

There’s rarely anything insightful about real estate to be learned from these “reality TV” shows. There are rare exceptions, of course, and what went down on Episodes 2 & 3 on Season 2 of Buying Beverly Hills does provide several useful insights which I feel are worth sharing.

In Episode 2, the star of the show, Mauricio Umansky, has a client that needs to sell a $20 million property. Mauricio had tried to sell it before, but was unsuccessful. The seller now was highly motivated, and needed it sold ASAP – so Mauricio had the idea to auction the property off. Or that’s what they say, anyway – property records do not list Mauricio or The Agency as the listing broker for the home (1035 Stradella Road, Los Angeles) – it was actually listed by an agent with Coldwell Banker, and co-listed with Josh Altman (of Million Dollar Listing Los Angeles fame).

But in the episode, Mauricio points out that by auctioning the property, they would create urgency in a market which was lacking in urgency. There were a lot of $20 million homes for sale in Beverly Hills at the time, and with higher interest rates, a lot of buyers just felt that time was on their side and were in no hurry to buy.

I would put it to you that it’s not the auction itself that creates the urgency, but rather, it’s the low starting bid. Everyone likes a deal, so by advertising a low starting bid, eyes bulge out of heads and open houses fill up with prospective purchasers who want to see the merchandise before putting in a bid during the limited time the auction will be open.

With a low starting price, you are exploiting the law of supply and demand. There was low demand for $20 million homes, but abundant supply. But by advertising a low starting bid, they tilted the market in their favor – suddenly the home was in a market segment where there was really high demand, and very small supply. After all, how many $20 million homes are offered for sale at $1 (or whatever the starting bid was)? Very, very few. And how many people would want a $20 million house for only $1? Very, very many. If you want to get a bargain like that, you’d better get over to check it out right away, yes?

Creating urgency is in fact a great marketing strategy, regardless of the kind of house you have to sell, or the price point.

The next valuable nugget to be gleaned was when examining the issue of the buyer’s premium for the auction. In this case, the premium was a whopping 12% – so if you the buyer won the auction at, say, $20,000,000 they would actually need to pay $22,240,000 (with the seller getting only the $20 million, and $2.4 million going to the auction house).

On the show, there was a lot of discussion about how buyers would calibrate their bids knowing they would also have to pay another 12% on top of the winning bid price.

This is really important to consider given the increased attention being paid to the question of who pays a buyer’s agent’s commission. If a buyer has to pay the commission, sellers need to understand that this is money that won’t be coming to the seller – the buyer will just offer less. And in fact, by not offering to pay a buyer’s agent commission, you will undoubtedly be reducing your pool of potential buyers (that is, decreasing demand for your home), at lease to some degree, as was clearly the case in this situation.

The last interesting lesson underscores an axiom in the real estate business: your first offer is usually your best offer. Actually, what I say is that your first offer may be from your best buyer, because it’s almost always possible to improve someone’s initial offer in some way.

In the case of these episodes of Buying Beverly Hills, they actually had two “preemptive” offers, at $21 and $21.5 million. Even though Mauricio and crew said that they felt the seller should accept the $21 million offer (I guess it had better terms that then $21.5 million offer?), they apparently were unable to convince the seller to do so. So the property went to auction, where it sold for $18.4 million (plus another $2,208,000 for the 12% buyer’s premium).

That’s a bitter pill to swallow, because it was a no-reserve auction. The seller ended up losing $2.6 million by taking a pass on that $21 million offer (or $3.1 million in the case of the $21.5 million offer). The market was speaking loud and clear to him then with those two preemptive offers – but he chose not to listen, and paid a pretty steep price.

And I guess there’s one more lesson still to be learned: this is the reason why auctions are not more popular in the United States. With an auction, you lack the ability to negotiate with the buyers, and arrive at not only the best price, but the best combination of price and terms. You lose the ability to talk to the buyers and coax their best offer out of them – and in many cases, sellers end up leaving money on the table, or miss out on terms that may make the deal more favorable to them in ways that are not strictly monetary.

All in all I felt Season 2 of Buying Beverly Hills was fairly lackluster and doesn’t do the public perception of REALTORs the least bit of good. But there were lots of gorgeous houses on display, and even with all the puffery and nonsense, there were some valuable lessons to be had.

Feel like talking shop? If so, please feel free to contact me any time. I love to talk about real estate any time, day or night. 🙂