Vacation Homes Going On The Block

In Slump, Developers Try Auctions To Cut Backlog

August 04, 2009|By Jamie Smith Hopkins | Jamie Smith Hopkins,

The ballroom was so packed that people spilled into an adjoining room, the air heavy with body heat and anticipation.

Nothing brings out a crowd - more than 600, in this case - like word that new beach condos once listed for as much as $850,000 could be auctioned off for as little as $85,000.

The event in Annapolis last weekend, for a Delaware project, was one answer to a pressing question for builders big and small: What does it take to sell second homes in the longest economic slump since the Great Depression? U.S. vacation-home sales dropped by half between 2006 and last year, according to the National Association of Realtors.

For some companies with projects languishing in Mid-Atlantic vacation spots, auctions are starting to look like a pretty good exit strategy.

"We wanted to create the urgency and get done with it," said Michael DeStefano, president of Gambrills-based Sturbridge Homes.

The builder has an auction scheduled this month for the 14 remaining units at a waterfront development in Cambridge, Md. DeStefano decided to go that route after Beazer Homes auctioned off 28 units at another Cambridge development in May. (The highest bid was $410,000 for a unit previously priced at $800,000.)

"When real estate markets go down, the second-home market goes down first and comes up last," DeStefano said. "Those folks are sitting on the fence, worried we're going to lower prices again, waiting for the best deal. Finally we decided this is the way everybody will know they're getting the best deal."

The Marina View complex in Dewey Beach went into Saturday's event, run by Max Spann Real Estate & Auction Co., with 19 out of its 46 condos unsold despite several years of marketing by the builders who worked on it as Marina View LLC.

Afterward, all the units were gone.

People from New York to Virginia showed up at the Loews Annapolis Hotel for the auction. Jack and Todd Burbage, a father-and-son development team, were there to watch because they're planning to auction off the remaining 22 condos in their Sunset Bay project in Chincoteague, Va. Many of the rest were prospective bidders, hoping to snap up a deep discount.

"Who knows, maybe we'll get lucky," said Sue Brodie of Baltimore, who came with friends after touring the condos on a lark while vacationing in nearby Bethany Beach.

Anyone dreaming of spending just $85,000 went home disappointed: The cheapest condo was bid up to $240,000. The most expensive went for $585,000. But original asking prices ranged from $399,000 to $850,000 for the one- and two-bedroom units, so the payout wasn't what the builders had once fantasized about, either.

"Three, four years ago, people were paying it," said Brendan Garfield Crotty, a real estate agent in Bethany Beach. "Right now, it's way too high."

Crotty was there with his wife, their almost 1-year-old son and a blue bidding card, just in case anything happened to go for $100,000 or so. He's still kicking himself for not making it to an auction in the spring. Finished lots a few miles from the beach went for half price, he said.

But his expectations weren't high for Marina View, which was just as well. The bidding shot past $200,000 for each of the condos in the space of a few rapid heartbeats.

Jen and Jeff Heckman of Pennsylvania hadn't wanted to spend more than $200,000, but they snapped up the second-to-last condo for $265,000 because they saw their chance slipping away. "It was a little deflating," said Jen Heckman, 37, who is trying to figure out how to fit their family of five, plus inevitable friends, into a one-bedroom. But she said she's happy they got a place they like, and for less than the $425,000 asking price.

"It was exciting," she added. "My heart's still pounding."

The auction was part sale, part high theater. Max Spann Real Estate, the auction firm, brought out a light jazz ensemble to entertain would-be bidders before the action began. Employees in dark suits with red carnations worked the crowd. Company chairman Max Spann Sr. ordered everyone to "limber up."

Once the bidding started, auctioneer Dwayne Craig paused from his rat-tat-tat recitation of numbers to joke and cajole. "Today is the day you name your price," he declared.

Trying to get $5,000 more for a two-bedroom, he bellowed: "You know it's a bargain." A few condos later, he said: "If you take two together, you can pick your neighbor."

And over and over: "This is the last one we're guaranteeing absolutely today!"

That's because the builders went in promising only that they would sell seven of the 19 condos at the $85,000 minimum bid. They added the rest to the auction block in dribs and drabs, getting applause from the crowd every time.

"Virtually all of our auctions end in sell-outs," said Max Spann Jr., president of the New Jersey company. When the developers "see a roomful of bidders, it's pretty obvious that whether they like the prices or not, that's the marketplace speaking."

Alex Cooper Auctioneers and A.J. Billig & Co., auction companies in the Baltimore area, both say they expect to see more new-home projects of all sorts put on the auction block.

Both companies have auctioned Baltimore-area homes and lots for builders - and for lenders that foreclosed on builders. Alex Cooper has at least three builder auctions scheduled in the next few weeks.

"It's not about making money," said Paul Cooper, a vice president with Alex Cooper. "It's about just moving on."

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