Auctions offer a way to speed up home sales

If their plans pan out, John and Judith Mehrens soon will own a waterfront condominium in a brand-new Bremerton complex that's currently advertising units starting at $109,000.

But they'll have to be on their toes because this isn't your typical real-estate transaction.

Instead, 28 units in a project called The 400 will be auctioned off to the highest bidders April 20 in an eBay-like experience: unbelievably low starting prices followed by last-minute bidding frenzies if the goods strike the public's fancy.

With a week to go, people from all over the country have expressed interest, and more than 500 have registered to attend the event at the Kitsap County Convention Center.

It's shaping up as the Puget Sound area's largest auction of brand-new, nonforeclosure housing and potentially the start of a trend.

With home sales in the doldrums, auctions give buyers a chance to land plum properties at reduced prices. They also are a means for developers to quickly unload the financial burden of unsold housing.

The Mehrens, who are retired, own a nonview condo in the 70-unit building two blocks from the Bremerton ferry terminal. They're toying with upgrading to a view.

"If it looks like a person could buy one for a price somewhat below what they were being marketed for before the auction, we'd be interested in doing that," John Mehrens says. "But if it becomes a feeding frenzy, we'll go have a cup of coffee."

Meanwhile, the building's developer, Mark Goldberg, chairman of M.S. Cavoad Co. in Seattle, says his major goal is to get out from under his construction loan. On the $21 million building, "we have $5.5 million to go." The complex is not in foreclosure.

Goldberg says the problem has never been with the building itself, a steel-and-concrete midrise designed by Mithun, the same firm that's won kudos for designing Seattle's flagship REI store. Even before it was completed last July, The 400 was 70 percent presold at prices topping out at $919,000, or $531 a square foot.

Then Bremerton's real-estate market followed the national trend and ground to a halt. Some presales fell apart.

Jacqui Curtiss, the broker in John L. Scott Real Estate's Port Orchard office, says she's not surprised the remaining units are on the auction block.

"In real estate, timing is everything, and the timing was bad," Curtiss says. "Builders and developers are struggling everywhere. And when you have a lot of units in one building, your exposure level is a lot higher."

Need to move product

Recently it took several months to sell five units in The 400, an unacceptable pace, Goldberg says. "We're not going to sit around for the next year selling one or two."

Instead, his company contacted Real Estate Disposition Corp., a California company that has conducted property auctions throughout the U.S. In December, it auctioned 250 new homes in Portland; and in January, more than 1,000 in Southern California.

Noting "it's a buyer's market," REDC's vice president, Mary Claire Quella, says sellers see auctions as "an alternative marketing strategy. They think it's a way to get a lot of information out to a vast number of people."

Paul Thomas, a founding partner of Northwest Auctions in Seattle, has conducted a dozen auctions in the last year for homeowners. He foresees more builders going this route.

"At least three-quarters of our residential auctions over the next year or two will be conducted for builders who are desperate to sell their properties before losing them to the bank," Thomas projects.

Property auctions are common in Australia, New Zealand and parts of Europe, but they have yet to catch on around here, says Dean Street, an Eastside real-estate agent and foreclosure-auction expert.

"A lot of this stuff is 'buyer beware,' and people here don't want buyer beware," says Street. "They want to kick the tires and make sure they're buying what they're buying."

Experience counts

That's one reason seasoned investors dominate at foreclosure auctions. Often buyers can't get inside foreclosed homes for a preview, making the properties risky for novices who lack deep pockets to deal with money-pit problems

With nonforeclosure auctions, such as The 400's, buyers generally can visit beforehand and even bring a home inspector though, something Quella recommends.

But knowing the property is in acceptable condition is just one aspect of making a smart purchase.

It's also important to know how auctions are structured and what's a fair price to pay.

As eBay has taught the nation, it's customary to open with a starting bid that's more a tease than a true measure of the item's worth.

Then, whether bidding on a condo or a clarinet, it's up to the bidder to research the item's probable value.

At The 400, the starting bid on four units, each under 600 square feet, is $109,000, according to the auction's Web site.

The site also provides a "previously valued to" figure. For example, two of the $109,000 units were "previously valued to" $269,000.

This was their initial price months ago. After several price reductions, an identical new unit recently was listed for $212,500, according to the Northwest Multiple Listing Service.

REDC's Web site doesn't disclose that price reduction, nor does it have to.

What really counts is the "reserve." That's the secret threshold price the seller will accept.

Buyers can't know going in what that number is; if it's not met, the seller is not obligated to sell.

Often they don't. At the Portland house auction conducted by REDC in December, 250 homes "sold," but the developer rejected the top bids on 109 of them.

Goldberg says he's not willing to lose money but wouldn't say how deeply he would discount The 400's units.

"If prices get bid up to where they were, it's still a hell of a deal," he says. "Can you show me another steel-and-concrete building, waterfront, that's under $500 a square foot? If people do their homework, they'll recognize it."

The real danger is getting too caught up in the auction process and overbidding, cautions says Amy Allen, a Windermere Real Estate agent who formerly marketed The 400.

"The psychological is people hear 'auction' and think 'great deal,' " says Allen. "If you've ever done anything on eBay, you know how you get caught up in the moment. But this isn't a dish on eBay. This is a home."

Auctioneer Thomas says burned buyers usually have committed one or more cardinal sins.

They got into a bidding war and didn't stick to their limit. Or they signed a contract that had terrible terms. Or they bought a property with terrible problems.

Still, people "absolutely can get some bargains," Thomas says. "That's why we do auctions."

Years before he moved to The 400, John Mehrens learned that personally.

Out of curiosity he attended an auction of condominiums clustered around a golf course near Santa Cruz, Calif.

Amid a party atmosphere complete with hors d'oeuvres and a band, bidding was brisk on choice units. Once they were gone, the crowd thinned.

Suddenly Mehrens realized he was the only bidder for a particular unit.

He got it for $95,000 and promptly turned it into a vacation rental, which paid the mortgage.

About six years later, he sold his impulse purchase — for some $200,000.

Now he's hoping his good luck will hold for next week's auction.

Elizabeth Rhodes: erhodes@seattletimes.com