This weekend, Buena Vista Custom Homes, the largest builder in Oregon, is conducting a grand opening for its newest neighborhood, Austin's Landing, in Oregon City near Clackamus. This 18-lot subdivision will feature single-family homes that range from 1,779 to 2,550 square feet and will be priced from $360,000 to $399,000.
The opening is occurring only a month after Buena Vista, which is based in Lake Oswego, Ore., generated more than $10 million by auctioning 36 inventoried homes and 14 lots. And on Monday, the builder disclosed the final tally for a much larger auction it conducted last December, when Buena Vista raised $65 million by offering its entire inventory of completed homes, 228 units (which included around 30 leased homes targeted to investors). The auction found buyers for 141 of those homes, some of which sold for discounts as high as 36 percent. For example, a buyer paid $380,000 for a 2,261-square-foot, four-bedroom home in Beaverton, Ore., that Buena Vista had listed at $569,350.
The auction in December drew 2,209 attendees, while the second auction, held on March 8 and consisting of homes that either hadn't been completed in time for the first auction or didn't sell then, attracted 454 prospective buyers. Buena Vista supported its auction with a $350,000 ad budget and is donating nearly $300,000 of the proceeds from these auctions to 19 area charities.
Mike Higgins, a spokesman for Buena Vista, explains that these auctions should not be interpreted as a signal that the builder is lowering its profile in the Greater Portland metropolitan area, where it closed 188 homes last year, ranking eighth in market share, according to Hanley Wood Market Intelligence, the research division of BUILDER's parent Hanley Wood, LLC. In January, Buena Vista broke ground on a 10-lot neighborhood called Milesbrook in Tigard, Ore., where homes ranging from 2,550 square feet to 4,624 square feet will start at $469,950. The builder is still active in two communities in Happy Valley, Ore.-Jackson Hills and Lincoln Heights-and is planning other communities in the state.
(Buena Vista's owner, Roger Pollock, is also developing a resort community in Mexico called Cerritos Beach Club, which will include 100 one- and two-bedroom villa bungalows and 42 bedroom units in an on-site hotel.)
However, the auctions represented one solution to a problem that Buena Vista shared with many builders around the country: It simply built too many higher-priced spec homes that couldn't find buyers. "Last summer, someone turned off the faucet and Portland's housing market hit the skids," says Higgins, who notes that Buena Vista was selling only two or three homes a month, versus 15 to 20 per week a few years ago. The auctions gave Buena Vista the chance to bite the bullet on product that wasn't moving and start anew with a more affordable assortment that will mostly be priced in the low to mid $400s, versus the high $600s prior to the recent inventory sell off. Austin's Landing is the direction in price and size the company is now taking, says Higgins.
Buena Vista took a lot of flak from other local builders for offering its unsold inventory at such deep discounts. But nearly all of the homes it auctioned sold at the "reserve" price, or the minimum price the company had established it would accept. Figuring out what the reserve price should be, though, is the biggest challenge for builders selling land and homes at auction, says Keith McLane, head of business development for Irvine, Calif.-based Real Estate Disposition Corp. (REDC), one of the country's largest auction houses, which handled both of Buena Vista's auctions.
"You have to convince sellers what market value actually is," McLane tells BUILDER, "and that the swimming pool in the backyard might only add $2,000 to the value, not $20,000" as some sellers expect. While he says it's hard to actually know what homes are worth these days, with builders giving so much away at retail, he says REDC's builder clients have generally been getting 90 percent of the "realistic" market value at auction, net of incentives.
McLane says those clients include many of the industry's largest production builders (whose names he did not disclose for confidentiality reasons). REDC markets its auctions on two Web sites-www.ushomeauction.com and www.auctiontoday.com-the latter of which currently includes notices of public auctions for more than 45 homes in Las Vegas, 40 homes in Phoenix, 75 condos on Florida's Gulf Coast, and 90 condos in Sacramento, Calif. McLane projects that REDC's builder division, which he oversees, will generate more than $350 million in sales this year.