With home sales in the doldrums, re-sale home prices falling like stones and inventory rising, Southern California home builders are pulling out all the stops to try to move new home product. Auctions are back after a hiatus of about 12 years. The Real Estate Disposition Corporation recently held 10 days of auctions in various Southern California cities. Most of those are re-sale properties, but they also have a builder division that works with distressed, or just stressed, developers or construction lenders. “On the builder side, we’ll do about probably 35 to 40 auctions this year across the country,” said Keith McLane, President, REDC Builder Division. “Our clients are builders and more and more increasingly banks or construction lenders.” Their first auction in the San Fernando Valley took place Aug. 24. The builder of a newly completed condominium building in Studio City sought to sell 25 units. Although REDC declined to reveal the builder’s name, some digging revealed that it was West Millennium Group of West Los Angeles. It was a month-long marketing process with more than 2,200 people touring the property, according to McLane, and 540 actually showing up at the auction. REDC does not release information on the actual prices paid at auction, but McLane said that about 20 of the units were sold on auction day. That doesn’t necessarily mean they’re closed deals. Another REDC auction held the same day at the Los Angeles Convention Center had numerous properties become available again after some bidders were unable to qualify for a loan or come up with the necessary down payment. Out in Santa Clarita, Williams Homes took a slightly different approach with their Short Sale event on Sept. 6. With their 24-unit Solstice townhome project nearing completion, they wanted to try to get them sold off, according to company founder and president, Lance Williams. After running ads in the local papers and putting up a billboard right on Sierra Highway announcing the event, the site was all prepped for a big crowd to show up. They figured slashing about $100,000 off the price of the units would be too tantalizing to pass up; and putting a time limit on the price reduction one day only, first-come, first-served, pre-qualified buyers only would create a sense of urgency. But the chairs were empty and there was no one standing in line at the appointed hour of 10 a.m. on Saturday, just a bunch of sales people and lenders standing at the ready to make deals. Williams, who started building infill projects about 10 years ago, said the Solstice land “was purchased and entitled in 2003, so it’s been in process for quite awhile.” He added that residential inventory numbers in Santa Clarita have been on the decline recently. Williams quoted from a report showing less than 200 units of new home inventory in the Santa Clarita Valley. “There are lots of finished lots,” he added, “but builders aren’t building houses unless they can sell them first.” That’s the tack he’s taking with the second phase of the Solstice project. “We will try to pre-sell before releasing additional units,” said Williams. Montage Development’s president, Shawn Evenhaim, said this market has been different for a lot of reasons. “What blew my mind was, when rumors came out there were problems (with a project), the buyers were so knowledgeable,” said Evenhaim. “They came to the sales office, and if the house was $900,000, we would get offers of $600,000. I’ve never seen that happening.” On the flip side, he said, anyone with spare cash became a “developer.” “Half the people on the court didn’t know anything about the game,” said Evenhaim. “They were willing to pay 20 percent more than we were and we lost a lot of deals because of it, but now we might be able to buy those projects for less.” The only special incentive they are touting in their advertising presently is the $7,500 down payment assistance the federal government is offering to first-time homebuyers for a limited time. A J.D. Power survey found 92 percent of home buyers received sales incentives. The average incentive was more than $16,500 with the most prevalent being price reductions and credits for options and upgrades.
