Selling a House in 2 Minutes Flat : Real estate: More developers are hiring auctioneers to sell their property during the current slump.

Everyone knows that the housing market has gone to the dogs. So why did 500 people jam into a tent Sunday to outbid each other for 45 houses being sold in West Hills?

Because the houses were sold at auction, and the minimum bids required--$275,000 to $335,000--were as much as 36% below the prices most recently asked by the builder, Raiten Enterprises. All 45 houses were snapped up in just 90 minutes, although the weakening real estate market still reared its head: On average, the winning bidders offered a mere 8% above the minimum bid requirements.

Auctions of new houses are now commonplace in the Southland because builders, having watched the slumping real estate market, are anxious to sell quickly.

Developers of projects in Acton, Beverly Hills, Encino, Irvine, Newhall, Sun Valley and Van Nuys are among those who either have recently held auctions or have scheduled them soon. The projects include homes ranging from condominiums requiring minimum bids of $120,000 to five-bedroom detached houses with starting bids of $650,000.

More Southern California developers are using auctions than at any time in recent memory, said William W. Lange, president of Lange Financial Corp., a Newport Beach company that is managing several upcoming auctions.

An auction’s appeal to a builder is simple: It clears out his inventory in a single day. To move the merchandise, builders open the bidding with prices as much as 40% below the most recent prices they sought when they were selling houses one at a time.

Isn’t that financial suicide? Hardly.

Even at discounted prices, builders save thousands of dollars in carrying costs--such as interest on their construction loans, taxes and maintenance expenses--by not having to sit on houses. That’s why they can give buyers big discounts and still usually make a profit. Builders also avoid the risk of having the real estate market get even worse.

The auctioneers’ task is to make the auctions one-stop shopping centers and as painless as possible for buyers. Auctioneers’ representatives are at the housing site for weeks beforehand to show shoppers around, and they buy ads in local newspapers to boost traffic. They also try to help buyers pre-qualify for a mortgage even before the bidding starts, and they invite a title company and escrow firm to the auction so buyers can start the processing immediately.

In most cases, auctions are structured so that the minimum bids required are “without reserve.” That means that if only one person bids the minimum amount, and no one raises the bid, the builder is required to take it. Winning bidders must promptly put down at least 5% of the purchase price.

It looks as though the auction firms will stay busy for a while. Last week, the California Assn. of Realtors predicted that the state’s housing market would remain sluggish through 1991, with sales of existing single-family houses tumbling an additional 15% from this year.

Amid those expectations, builders of new housing “don’t want to spend eight to 10 months selling a property,” said Brooke Lauter, marketing director for Kennedy-Wilson Inc., a major auctioneer based in Santa Monica. Kennedy-Wilson, which handled the West Hills auction for Raiten Enterprises, expects to auction $340 million in real estate this year nationwide, she said.

(Raiten was headed by Northridge developer Ezra Raiten, who, along with his 17-year-old son, was killed two weeks ago in a plane crash in San Luis Obispo.)

For their part, auctioneers such as Lange or Kennedy-Wilson get paid a 3% commission on each house’s sale price--although that fee can go as high as 8% or 10%, depending on the project, Lange said. Moreover, auctioneers get an additional fee, usually 2% or 3%, to cover the auction’s marketing costs.

While a typical real estate agent fights with several other agents to sell just one house, an auctioneer firm earns its fee on possibly dozens of houses in a single day and with no competition.

Auctions are well known in the world of expensive art and rare coins. The New York Stock Exchange essentially uses an auction system for trading securities. Auctions of new houses also are common in the eastern United States and in some other countries, such as Australia. But in Southern California, auctions were seldom used because builders and other sellers had little trouble attracting buyers.

“The feeling was, ‘Why change horses when the other way is working?’ ” Lange said. “All of a sudden, the other way stopped working.”

Many builders remember the last major slump in local real estate, during the 1981-82 recession, he said. They are quickly adopting the auction format because they “don’t want to be in that position again.”

Nonetheless, local builders aren’t using auctions just as a last resort.

Lauter said about a third of Kennedy-Wilson’s building clients use auctions for grand openings, especially if they want to break ground on another project and need the cash. Dividend Development Co. of Santa Clara has routinely used auctions to sell new housing in recent years.

“Developers look at auctions now as more of a marketing option,” Lauter said.

D. T. Smith Inc., which built the Village on the Green condominiums in the Wood Ranch master-planned community in Simi Valley, has sold 26 of the project’s 78 units by itself since early this year. Now it has scheduled an auction Oct. 21 to try to sell the remaining 52.

“It’s not a distress sale,” said James Moscowitz, Smith’s executive vice president. “We just thought it was a good way to get rid of the standing inventory right now.” Smith also has auctions scheduled in Irvine and Chino Hills.

Not every builder sees auctions as beneficial, however. Newhall Land & Farming Co., developer of the master-planned community of Valencia, doesn’t want to auction houses at much lower prices than its existing residents paid a few months earlier, said Executive Vice President Robert D. Wilke.

“We’re more willing to make sure we stand behind our buyers than maybe developers who come and go,” Wilke said. But Newhall has an advantage over many builders. It owns the land in most of Valencia and can accelerate or slow construction to adjust its inventory of unsold houses to market conditions. With annual revenue of $238 million, Newhall is also big enough to absorb slowdowns in the market.

Regardless, Moscowitz contended that many people living near unsold properties do like auctions, because an auction quickly fills the neighborhood, eliminates the threat of vandalism to empty houses and helps all the houses keep their value.

“The majority of homeowners would prefer to have a full community,” he said.