Auctions an alternative as market slows

From the Chester Daily Local:

Home auctions on the rise

And now for yet another sign of the rapidly cooling housing market:

Prudential Fox & Roach is teaming up with Sheldon Good & Co. to offer auctions as a way to sell homes for owners, builders and real estate developers alike.

The largest real estate firm by far in the Philadelphia metropolitan market, Prudential Fox officials believe its combination with Good, the biggest U.S. auction house, is especially well-timed.
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Usually, real estate auctions flourish as local housing markets cool. The last time auctions flowered was during the late 1980s and early 1990s, when home prices dropped precipitously in certain parts of the United States, southern California and Texas included.
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Auctions can provide builders, investors and developers with the ability to buy and sell everything from single-family homes, townhouses and condos to raw and approved land, Ritti explained. Sales in once red-hot markets have tanked so quickly that sellers have little handle on how much their homes are really worth now -- or how to attract buyers to begin with.

Auctions also give homeowners another, often faster way to sell their abode in a market fast losing steam.
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Prudential Fox first looked at the New Jersey shore real estate market because certain pockets there are languishing,Ritti said. Existing home listings in Ocean City, N.J., Wildwood, N.J., and Brigantine, N.J., for instance -- markets where people tend to buy homes more for investments than to occupy them --have doubled since a year ago.
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First client for the new alliance is builder Tom Morello’s Sea Breeze Development, which will put 22 new vacation homes on the auction block in North Wildwood, N.J. come October.

From the Wall Street Journal:

As Rates, Inventories Rise, Developers Try Home Auctions

Brian Michaud just picked up a little something for 40% off -- a brand-new, two-bedroom condominium in Fish Creek, Wis., with a private elevator and harbor views. His method: He bought it at auction. Though the condo was new, its developer decided he wanted to sell quickly, so he put it on the block last month.

Mr. Michaud had been watching the condo since construction started, but figured last year's $1.25 million asking price was beyond his budget. But when it went on the block, Mr. Michaud and his brother snapped it up for $740,000 -- less, even, than comparable units without water views have sold for nearby. "It was a great deal," he says.

As the U.S. housing market slows, private homeowners have begun experimenting with various sales strategies, including putting the prized family home up for auction. But another group of sellers is also heading to the auction house: builders and developers trying to unload newly built homes. Unlike typical homeowners, whose emotional and financial stakes in their homes might keep them from slashing prices, developers tend to lack sentimental attachments and may have more room to negotiate financially. So in many cases, buyers can get a decent price on new properties at auction, with discounts of 20% and even more.
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Unlike private homeowners, who may overvalue their homes and are often reluctant to reduce their asking price at auction, small builders and developers tend to be more sophisticated and motivated, auctioneers say, with a clear-eyed understanding of the value of their properties. And because builders make as much as 40% gross profit on the homes they sell, they also have more wiggle room when it comes to reducing the price. "A home seller is in a retail position," says Destin, Fla., auctioneer Ben Anderson. "A builder is in a wholesale position."
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This isn't the first time that large numbers of new homes have gone under the gavel. In the late '80s and early '90s, builders large and small were buying land and building houses on speculation. When the market turned, many of these properties wound up in foreclosure, along with thousands of privately owned homes. As a result, banks created separate departments known as REOs, for "real estate owned," to handle the onslaught of sales.