Condo owners, showing a fresh sign of desperation in a sputtering housing market, are turning to auctions to sell units.
In one Pompano Beach building a batch of units were auctioned last weekend. And two Singer Island penthouses are on the auction block today.
The quick-sales technique illustrates the growing trend of multi-unit auctions, and auctioneers expect to see an increase in the near future as developers and speculators tire of sitting on unsold properties as inventory builds.
"An auction is perfect where time is the most important factor," said auctioneer Fred DeFalco Sr. of Boca Raton-based DeFalco Auctioneers & Consultants.
DeFalco was hired to auction 18 condos last Saturday at the newly built Riverside Grande at 821 N. Riverside Drive in Pompano Beach . Eleven units belonged to developer Julio Pavone, and the other seven belonged to buyers who never moved into the units.
Pavone used auctions to move condo units about six years ago, but said he didn't need to resort to that until now because of the strength of the South Florida market. Since the chill in housing sales set in last year, he has reverted to auctions to try to liquidate his unsold units.
"We cannot wait to sell little by little," said Pavone, who plans to invest the income in other properties.
Eight of his units went under contract at the auction. The new two-bedroom, 2½-bathroom units ranging from 2,200 to 3,000 square feet went under contract for $800,000 to $1 million. The prices were 20 percent to 25 percent below the original prices.
Three other units owned by Pavone and seven units offered by individual owners didn't sell.
Besides moving properties faster, auctions help generate fresh interest in the condo buildings. Pavone said he received numerous inquiries about remaining units Monday.
"The auction lets the developer distinguish his own properties in a way that is just not possible if it's just another set of units for sale," said Carl Carter, a spokesman for Gadsden, Ala.-based J.P. King Auction Co.
His company is auctioning the furnished penthouses on Singer Island in Riviera Beach today for seller Michael LaVallie.
Multi-unit auctions are "more developers' than anything else, but you also have a lot of properties owned by flippers who looked up and saw there was no one to flip to," Carter said.
LaVallie, who had been buying and selling units as an investor, planned to live in one of the penthouses and sell the other. But when the market turned, he could not move either property and opted for an auction.
J.P. King Auction has no other multi-unit auctions scheduled in South Florida , but Carter expects that to change soon.
The company is talking to South Florida developers almost every day, and "a lot of developers aren't going to hang on that long," he said. "I really thought we would see more (multi-unit auctions) by now, but there are people who are on the verge of some hard decisions."
Fisher Auction in Pompano Beach is working with several developers across the country but also does not have any multi-unit auctions scheduled, according to company broker Lamar Paul Fisher.
"We had a developer who signed up to do an auction with multiple properties, but he got scared," said Lidio Britto of Miami-based Estates in Auction, who began promoting this type of auction last November. "This is a new concept here in South Florida , and sellers are still afraid."
One of the reasons for the fear is that most auction buyers are purchasing the units considerably below the developer's original asking price.
Developers also can expect to see sales stop when auctions have been arranged, Carter said. Potential buyers will hold off in hopes of getting a good deal at the auction.
Developers have seen limited success with auctions and have been disappointed with the selling prices, said Jack McCabe of McCabe Research and Consulting in Deerfield Beach . But he still expects to see more go the auction route.
The main motivation for developers to use multi-unit auctions is to reduce their inventory and carrying costs in a flooded market.
In Miami-Dade County about 8,000 condo units will be completed this year and about 12,000 units are due next year, according to McCabe, making it harder to call attention to any one property.
"A lot of these developers are 18 months into a three-month business plan," Carter said. "These developers built with the idea that they would be sold out, but the market hit a dramatic air pocket so quickly that they were left sitting on a large amount of property."
The rising number of South Florida homes in foreclosure or on the verge also is expected to have an impact on the residential inventory and push more developers toward auctions.
New South Florida foreclosure filings in February hit 3,629, up from 973 in February 2006 and 1,620 in February 2005, according to Daily Business Review data.
"We are going to see a tremendous increase of auctions between private companies and on the courthouse steps," McCabe said.
Besides acting as sales conduits, auctions with no reserve prices help determine actual market values, he said.
DeFalco said a properly conducted and marketed auction will result in a price of 80 percent to 120 percent of the assumed market value.
He was hired to auction two three-story, three-bedroom townhouses at Tuscany Village in Boca Raton last month. Developer Dick Davis tried to sell the identical units with private elevators for $695,000 but still could not sell after reducing the price to $650,000.
Following the price reduction, DeFalco estimated the market value at $640,000. Eighty percent equals $512,000, and DeFalco told the developer to expect $500,000 to $600,000 per unit at auction.
One sold the day before the auction for $540,000, and the other sold at auction for $580,000.
"The public was more fair in their pricing than a private treaty sale," DeFalco said.
Going through an auction can also cost more. Developers accustomed to paying about 3 percent in commissions at the height of the condo boom will pay between 5 percent and 8 percent when selling by auction.
But sometimes the fee can be higher. DeFalco said in situations where he does the marketing, his fee can reach as much at 10 percent.
Multi-unit auctions are cyclical and pop up when the open market is bleak.
Donald Trump auctioned 63 units at the waterfront Trump Plaza of the Palm Beaches in West Palm Beach in 1991, collecting $15.8 million after his personal appearance drew a crowd to the sale at a ballroom at The Breakers.
Another example of the public dictating auction prices came last December when J.P. King Auction Co. offered 100 condo conversion units at auction including 40 with no reserve in Tampa .
The developer, Bay Communities Real Estate, originally priced the units at $180,000 to $325,000. The no-reserve units sold for an average $147,500, and the high-end units went for around $180,000. None of the 60 units with reserve prices sold in the auction.
"The seller is the judge, but when you do an auction sale you want a trial jury," DeFalco said. "The marketplace will never lie. Brokers lie, sellers lie and buyers lie. But when you put all of them together in a public setting . the truth will come out. The question is always 'Can you handle the truth?' "
Jessica Burke can be reached at firstname.lastname@example.org or at (305) 347-6685
Fred DeFalco Sr. photo by Melanie Bell