New Home Construction Home Builder Real Estate AuctionAround town, new home builders tend to raise incentives before dropping price. After all, they report the full sales price, so dropping prices for them is a slippery slope of loss. With incentives, they can give deep “discounts” to buyers, while artificially inflating the price so that their other communities can sell higher.

However, it seems that buyers are finally realizing that although house prices are getting lower, this is far from an ideal buyer’s market. The credit crunch has hit everyone from those with credit cards in their pockets to those with 401ks and other investments in the bank.

As a result, it appears that home builders are being forced to find other ways to sell their new homes:

Home builders in Arizona, whose lavish incentives haven’t attracted buyers in the slumping market, are turning to the auction block as a last resort to sell empty houses.

Scottsdale-based Cachet Homes is auctioning 28 of its luxury homes on Sunday in the West Valley, some once priced at more than $750,000.

Bids start at about half of the homes’ original prices. Most properties will have no minimum reserve. The developer is following a national trend of builders’ letting home buyers set their own prices.

The sale is the first live auction in Maricopa County by a home builder, said Diane Byrne, Cachet Homes vice president of marketing. Online auctions and sales of foreclosed or individual homeowner properties also are gaining traction, she said.

Late last year, Lennar Homes sold 16 new homes in Litchfield Park through, an online home-auction service.

In March, 24 condominiums at Dobson Bay Club in Mesa will be sold in an auction by Accelerated Marketing Group. Promotional materials for the event say eight of them will be sold regardless of price.

In Arizona and nationally, home builders are faced with a glut of unsold homes and canceled contracts, as well as less traffic and fewer offers at their developments. Potential customers are fighting suddenly stiffer credit hurdles and often the challenge of selling their existing homes.

Cachet has faced similar problems with its homes at Verrado, a DMB master-planned community in Buckeye.

“We’re tired of being landlords; we’d rather be builders,” Byrne said.

Recent marketing strategies, such as promising two-year Lexus leases with home sales last fall, failed to unload enough inventory, she said.

“We would like to see those homes filled up with families,” Byrne said.

Such low prices show how eager the developer is to get homes off its hands, said RL Brown, publisher of the Phoenix Housing Market Letter.

“Not only is it a cost drag every month to keep (inventory) on hand and fresh,” he said, “as long as a builder has inventory, his lenders are likely not going to allow him to build more houses.”

Similar new-home auctions have taken place in Florida, California and Colorado, said Rhett Winchell, president of the Kennedy Wilson Auction Group, which is conducting Sunday’s sale.

“Most sellers don’t think about auction-marketing programs when the market is hot,” he said.

But when the market is slow and previous incentives haven’t worked, sellers rely on auctions to get rid of one to two years’ worth of homes in a day, Winchell said.

In Cachet Homes’ case, about $21 million in property will be on the auction block.

However, current Cachet Homes property owners visiting the auction office Thursday said they had paid “royally” a year ago to live in Verrado and were concerned about the auction’s low starting bids.

Cachet is offering 15 townhomes and 13 single-family homes at Verrado, as well as 16 condos at Flagstaff Ranch in Flagstaff. The prices just cover Cachet’s costs to build, Byrne said.

The cheapest in the Verrado collection is a 1,975-square-foot townhome with three bedrooms and two baths starting at $190,000. Original price tag: $349,900.

The highest-priced house, at almost 5,000 square feet, features four bedrooms, a game room and 3.5 baths. It’s going for $375,000, a markdown of 55 percent.

Realtor James Lee of Jess and Associates in Phoenix said he is taking a client to the auction “looking for her dream retirement home.”

The minimum bids starting “really, really low” caught his client’s attention, he said. “She really likes the neighborhood. She wants something newer than her home in Avondale. And her husband likes to golf.”

Despite current residents’ worries about pricing, marketing agents said sales could reach original listing prices with enough competition among bidders.

Brown said the strategy could create a “mini-market frenzy,” driving up prices through bidding even better than other methods of sale.

“If this auction has success,” he said, “you’re going to see auctions galore.”

The comment on Verrado struck me in particular. When I was an agent back in the day I had sold property there just after their initial lotteries. The building backlog and demand were insane. To now see that those same builders are looking to an auction to sell their remaining inventory, for a community that’s essentially out in the middle of nowhere, is humbling.

During the frenzy years, folks were careless and wanted to grab a house anywhere they could afford. Those same folks now face hour-long (or more) commutes as they make their way down a 2 lane I-10 freeway.

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Comment by Ron Holland
2008-02-23 05:51:41

From Wolf Laurel in NC mountains – I believe Merrill Lynch is correct about the arrival of recession in the United States. The housing downturn is negatively impacting property sales in second home communities in Florida. This is also slowing sales in NC mountain resorts that depend on Florida buyers.

Still the downturn in prices and building of inventories is starting to attract second home buyers from Florida looking for cool temperatures in our mountains. Also the dramatic decline in the dollar combined with weakness in American real estate markets are beginning to interest some bargain hunting European investors.

Ron Holland, Broker/Realtor with Wolf’s Crossing Realty. See Ron markets resale mountain and ski resort properties in Wolf Laurel and The Preserve at Wolf Laurel.

2008-05-21 13:18:16

[...] an average of 87% of the last list price. Similar strategies have been taken in Portland, Oregon, Scottsdale, Arizona and Omaha, Nebraska. Of note, most builders or agents are claiming that bidding frenzy is bringing [...]

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