Builders turning to the auction block in a last-ditch effort to move stagnant inventory may find themselves encountering another hurdle beyond reticent buyers if one recent scenario becomes a trend.
In September, Sacramento, Calif.-based Leonard Development Co. hosted a public auction in an attempt to unload 22 three-story townhomes at River's Side at Washington Square, an infill project in West Sacramento that sold only three of its 25 units after its initial sales offering in late 2006. The auction strategy worked, insofar as 20 bidders left the event (which drew nearly 200 attendees) with contracts in hand, some for as much as $100,000 under the original list price, according to local television news reports.
Two weeks later, however, the lender that holds title to the homes, Irwin Union Bank of Columbus, Ind., pulled the plug on the deals. The rationale for the bank's refusal, per a story in the Sacramento Business Journal, was that even the highest bids had failed to meet the minimum reserve prices established as baselines for the auction sales.
Bidding amounts started at $249,000, according to Irvine, Calif.-based auctioneer Real Estate Disposition Corp., which ran the event. However, none of the final offers came close to matching the minimum reserve price, much less the original list price.
Homes at River's Side that were initially marketed in the low- to mid-$400,000s left the auction block with bids topping out at $275,000 to $355,000. Final bids averaged $88,000 less than the reserve price, developer John Leonard told the Sacramento Business Journal.
Leonard Development and Irwin Union Bank declined to return phone messages from BUILDER seeking comment on the auction's outcome.