Slow-Selling Condos Move Fast at Sale : Auction Bidders Paid More Than Planned, Less Than Willing
For the seller, it was a dream come true--a complete sellout of 64 condominiums in about two hours. The project had been standing for two years and units had been selling at the rate of about two a month.
For many buyers, it was a case of paying more than they wanted to but less than they were willing to.
This buyers vs. seller, quick-paced contest was last Sunday’s auction of Bernardo Greens in the master-planned community of Rancho Bernardo in San Diego.
The 100-unit development features four three-story buildings overlooking the golf course and Laguna Mountains. Sixteen units had been sold by last February, when the construction lender, Great American First Savings Bank, took over deeds to the development from Walden Financial and Dick Weiser in lieu of foreclosure.
A Great American executive attributed slow sales to marketing problems.
Attracted Attention
Auctioneer Don Kennedy of Kennedy-Wilson in Santa Monica, demonstrated bidding procedures to the 1,000 in attendance and said, “It’s easy to spend your money here.”
In the minutes that followed, he proved that it was not only easy but quick. Within the first five minutes, three of the condominiums sold for $95,000, $105,000 and $102,000.
The auction had attracted attention during its month-long marketing campaign. With minimum bids set at nearly 50% off the last asking prices of $83,900 to $123,900, more than 1,500 shoppers toured the models and about 4,000 requested auction catalogues. On auction day, 387 registered bidders showed up with the necessary $3,000 cashier’s check to use toward their earnest-money deposit.
Bidders Offered More
With that type of response, Kennedy-Wilson president Bill Stevenson expected a sellout and he was right. Prices realized were at least 50% higher than the minimum advertised bids ($45,000 for one-bedroom units and $55,000 to $60,000 for two-bedroom units). But even successful bidders said they offered more than they planned on bidding.
Charles Chau of Rancho Bernardo said he wasn’t sure if his $71,000 bid for a one-bedroom, 905-square-foot unit was a bargain or not. “It was more than I wanted to spend,” he said after considering the $45,000 minimum bid that brought him to the auction.
The lowest successful bid of $66,000 came late in the day. An elderly woman who made a $70,000 purchase said she was “flabbergasted. I have no idea what I did,” before being whisked into the loan processing office.
Unsuccessful bidder Dale Tartakoff of Poway said that although he planned to buy a two-bedroom, 1,156-square-foot unit, the bidding went higher than he had expected. “I was only interested in buying a bargain. There were no bargains being offered today.”
The auction resulted in $5.75 million in gross sales for Great American. “The auction exceeded our expectations,” said Laura Naggiano, asset manager for Great American.
“We knew we wouldn’t get 100% of the asking prices, but we were sitting on a $6.4-million project. By doing a simple net present value calculation, we realized we could accept less than retail value for the units.”
The average sales price was 84% of the last asking price on the units. The highest bid was $110,000 for a unit previously offered at $123,900. None of the units sold for more than the asking price. Kennedy-Wilson expects that at least 90% of the auction day sales will close, with the possibility of 100% closing if “back-up buyers” purchase the properties.
Others Sold Quickly
Kennedy-Wilson conducted another auction Nov. 22 of 47 properties at Ironwood Country Club in Palm Desert. In that sale, one property sold for $560,000, compared with its $400,000 asking price and $240,000 minimum bid. Five home sites did not meet minimum bids and remain unsold.
The average price for the day was 71% of the last asking price, realizing total sales of $3.5 million.
Although several new developments in Rancho Bernardo have seen camp-outs and waiting lists of home buyers, the Bernardo Greens development would have taken more than two years to sell out, according to this year’s sales pace. Carrying costs over that time could have run $500,000 more, according to Kennedy-Wilson estimates.
Great American, like most lenders with REO (real estate owned) property, kept a low profile while marketing the Bernardo Greens project.
Facing future costs for marketing, maintenance, taxes and interest makes many developers or sellers turn to auctions, according to Stevenson. His firm has grown from $10 million in gross sales in 1977, when the company was started, to $92.2 million last year. Stevenson expects to break $110 million in sales this year. His average auction tops $4.6 million.
Twenty-three new homes at Capistrano Royale in San Juan Capistrano go on the auction block today at 3 p.m. More than 100 bidders have registered, attracted by the advertised minimum bids of $180,000, averaging one-half of the original asking prices.
