Home auctions rid homebuilders of inventory fast

This article first appeared in the PB August 2008 issue of Pro Builder.

Wish you could see your overstocked home inventory disappear as fast as the whack of a hammer on an auction block? Gardena, Calif.-based Cal Coast Homes is one recent developer who reportedly auctioned 18 of 24 homes offered in less than 40 minutes, netting a reported $10 million from its Gardena Village community just southwest of Los Angeles International Airport.

Roger Pollock, president of Buena Vista Custom Homes of Lake Oswego, Ore., successfully pulled off a two-day auction last December of 141 of his 250-unit home inventory, generating $65 million in sales in a well-publicized move that may have been the largest sales event in Oregon real-estate history. He conducted a successful smaller auction in March.

Here are some of Pollock's tips to keep in mind if you're considering an auction:

Come to grips with the reality of the market. "Builders must realize that if they enter into an auction, this will likely bring the best available price and, good or bad, you should be prepared to accept the reality that the market delivers."
Select a professional auction producer. "We went with nationally renowned Real Estate Disposition Co. They run a flawless operation and focus on the key elements needed to deliver customers to buy your product. Without this you are going to fail."
Market the auction. "Treat the auction like an event to get the bidders you need, and have a well-designed marketing and PR plan. We are big believers in public relations, and we chose to tell the story: 'We overbuilt; now we need to sell.' It is what it is. ... We build a great home and we have a positive name, and we wanted to let people know why we were auctioning off these homes."
Be the leader. "Ask yourself whether you would like to be first to do an auction in your market or last. If you think this is a good avenue to quickly move your product, then don't stew over your decision. Make an action plan and get it done."
Be prepared to sell. "We sold 141 homes in our first auction. We high-fived each other and then realized that we need to prepare 141 homes to close within 30 days. That was a big undertaking for our company. This will likely be the case for any builder. ... We had a couple of our sub-contractors quit immediately saying they couldn't do it. Prepare your operations crew for the task at hand."

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