Struggling to Close Out Those Last Homes in a Community?

Posted in Public Relations,Strategies by Jim Tome on May 21, 2008
Tags: , ,

National Public Radio ( 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.


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