When Buena Vista Custom Homes, the fourth largest builder in Portland, Ore., announced plans to sell 240 single-family homes at an Oregon Convention Center auction this past December, the folks at Arbor Homes were more than a little concerned–and it's easy to understand why.

AUCTION ACTION: Buena Vista Custom Homes' recent auction in Portland, Ore., generated $65 million in profits. However, area competitors hope that fire-sale tactics will remain the exception–not the rule. Photo: Courtesy Portland Oregon Visitors Association Arbor, whose parent company is West Hills Development, Portland's largest builder, was on the verge of selling the last two units in Happy Valley, which neighbored many of the homes Buena Vista planned for the auction. Unfortunately for Arbor, the auction threw a wrench into plans to close the final deals.

"The traffic got really high before the auction, but no one was going to make a decision on a home until after the auction," says Megan Talalemotu, the sales manager for Arbor.

Talalemotu suspects that two Arbor customers cancelled existing contracts so they could buy homes at Buena Vista's auction. The auction drew 2,209 attendees, led to 141 sales, and generated $65 million in profits. Some of the sales may not close, however. Buena Vista's competitors just want a return to normalcy after the much-ballyhooed auction.

Many take encouragement from the fact that Portland arrived late to the national downturn, and Buena Vista's fire sale is the only big one the market has seen to date. Still, negative press and cautious buyers spawned revamped sales techniques and major discounts and promotions from the market's leading builders.

Handling Concern

Once an auction occurs, buyers start to wonder if it's only the tip of the iceberg. "It sends out a message that those guys aren't here to stay," says Moriah Diederich, marketing supervisor for New Tradition Homes in Vancouver, Wash. "It's very difficult to get people out there looking at your homes."

Even before the Buena Vista auction, Portland's builders were already going to great lengths to court customers. Although sales fell sharply in 2006, prices hadn't really fallen because the market never saw the dramatic increases experienced by other regions throughout the country.

Builders tried many tactics to whet customer appetites. Some advertised breaks on options and offered discounts as high as $20,000. Diederich's team even tried something a bit more inventive: To promote its homes, which were both Energy Star certified and Earth Advantage certified, New Tradition threw in a fuel efficient car with every new-home purchase.

"Everyone had trouble with a down payment," Diederich says. "What if you can eliminate a car payment for a buyer? That would help them qualify for a mortgage."

The promotion worked, but not exactly as Diederich imagined. New Tradition bagged 40 sales in May–when the promotion ran–for the builder's strongest sales month ever. But only five or six people chose the cars; most wanted the upgrades.

Just because New Tradition's buyers didn't want to forego their car payments in lieu of upgrades doesn't mean Portland area builders don't like the idea of helping buyers with monthly payments.

"You're seeing a lot of different things," says Gail Fisher, president of Coldwell Banker Barbara Sue Seal, a realty firm in the Portland and Vancouver markets. "They're offering special loan programs. With mortgage lending tightening, they're buying down rates."

Inventory Control

Lower price points seem to do better in Portland, according to Diederich, whose company concentrates on the suburb of Clark County. Still, she thinks the market as a whole is fairing well compared to the rest of the country. For one thing, the inventory of homes is better in The Rose City. Jim Chapman, president of Legend Homes, thinks Buena Vista's auction is more the exception than the rule.

"The inventory of used homes isn't that bad because most people pulled them off the market and decided to wait," Chapman says. "Most production builders were watching their inventory pretty close."

Much of the condo inventory that flooded the market has now been snatched up by investors, according to Fisher. In one local condo project, The Wyatt, owners sold 70 percent of the units. In two other waterfront projects, investors are now renting a number of the condos.

In fact, the upside to Buena Vista's auction, if nothing else, is its effect on inventory. "I have to thank Roger [Pollock from Buena Vista] for doing it at this time of the year when it's seasonally slow anyway," Chapman says. "It did take a lot of homes off the market if the sales stick."

Learn more about markets featured in this article: Dallas, TX, Portland, OR, San Francisco, CA.