National Public Radio (NPR.org) the other day told the story about a California homebuilder who’s had enough with holding inventory in an ever-stagnating economy and decided to take a rather drastic action — placing their final new construction homes up for auction during a one day sale.

According to Mike Davin, president of CataList Homes, who the builder, Cal Coast Development, worked with to liquidate inventory, 18 of 24 homes offered sold in 38 minutes at an average of 87% of the last list price. Similar strategies have been taken in Portland, Oregon, Scottsdale, Arizona and Omaha, Nebraska. Of note, most builders or agents are claiming that bidding frenzy is bringing them prices close to their desired selling price.

So we gave this tactic some thought — after reading what one might think is yet another doom-and-gloom indicator of the housing bust — and came up with a strategy for you homebuilders and real estate professionals to consider to capitalize on the buzz and excitement that this rather radical decision seems to have created.

The articles observed “Hands went up all over the room. The bidding was frenzied and houses were going like they were free.” and “The ‘crowded ballroom’ and rapid bidding by those in attendance suggests a crowd of buyers are sitting on the sidelines waiting for better deals to come along.”

There’s a well-documented auction phenomena called the Winner’s Curse that happens when large groups of interested buyers gather in an open bidding environment. In short, the winner’s curse says that in such an auction, the winner will tend to overpay. Typically, each bidder independently estimates the value of the item up for bidding. The severity of the winner’s curse increases with the number of bidders. This is because the more bidders, the more likely it is that some of them have overestimated the auctioned item’s value.

What better way to create a sense of urgency and exclusiveness, drive attendance and encourage those rabid, desperate buyers seeking a bargain, than to embrace this concept for some of your communities where just a few homes stand waiting to be purchased. With inventory of existing homes clogging the market and sucking up any possibility of selling a new construction home — especially those where you no longer have sales staff onsite to handle drive-by prospects — consider actually marketing the actual auction — as well as a “pre-public opportunity” — as an exclusive occasion for select prospective buyers that may already have relationships with you.

Pay special attention to your lists of prospects who initially contacted you about the community — they showed an interest at one time, now capitalize on that by by letting them know that they can act an opportunity before the public auction.

You’re familiar with grand opening events when a development launches or reaches a significant stage; plan and promote a pre-auction event intended to give those interested prospects one last chance to act before the homes go on the block. Be sure to impart how well-attended the auction will probably be and that you expect the final selling prices to be near your listing prices. And if your pre-auction event fails to harvest any sales, at least it serves as another vehicle to build excitement — and attendance — for the auction itself.

So don’t look at home auctions as a desperate, last-ditch tactic — as the song goes, “know when to hold ‘em, and know when to fold ‘em.” Just be sure to do either smartly and with some strategy.

I must be listening to too much NPR these days — that or their reporting too much on the homebuilding industry’s woes! A recent spot on the radio (listen here and see a summary) hit a bit too hard to home. It was a story that originated here in Chicagoland about some of our larger homebuilders that were going bankrupt or having dire financial problems.

The gist of the story was that buyers of new construction homes were nervous to purchase from some of the larger builders as many were either going out of business or drastically curtailing their business. The story told the tale of one family who drove past their half constructed home, only to hear their newly installed furnace furiously pumping heated air through all of the open windows spaces — the actual windows were never installed!

It’s a sad story for sure, but I think it’s also a lesson for the homebuilding industry — consumers are so scared that you’ll disappear off the face of the earth after the next earnings report that you had better approach business in a different way.

I’d recommend builders — especially those who can claim a long, time-tested history or come from a proud family business-oriented perspective — take every opportunity to let their buyers who haven’t closed — and especially those prospects who they’ve had an interaction with — that they have no plans to leave them in the lurch.

Use whatever means are at your disposal — personal letters from the owners, individual phone calls, frequent press releases that shout out any new piece of good news (and start looking for those aggressively — even the simple sale of a single home now has untold significance), constant solicitation to local newspapers to write “we’re still around and strong” stories and even weekly e-mail contact with each and every contact from your sales staff.

It’s war out there and the news never seems to be good. Now is NOT the time to stay low and hope for better days. In fact, I would challenge each of you that the need to advocate, champion and promote yourself is important more now than at any other time. If you’re thinking cutbacks and riding the storm out, you’re already well on your way downward.