Sellers Turn to Auction in Slow Home Market

Galveston County Daily News, May 6, 2007,
by Laura Elder

GALVESTON — After six months with no hard offers on the five condominiums he owns on the island’s western tip, Tom McKinley figured it was time to get serious.

“Now is the time to get creative and try different things,” said McKinley, a St. Louis, Mo., resident who a year ago paid about $2 million for the oceanfront properties in the new Pointe West development.

McKinley, among a growing number of sellers who want fast results in a slow housing market, is doing something that would have raised eyebrows just a few years ago — he’s turning to an auction house for help.

On May 22, McKinley’s properties, along with what organizers say will be about 35 other island homes, condos and lots, will go on the auction block in a Houston hotel.

There, an auctioneer will goad bids from what sellers hope will be a room full of serious buyers.

Once reeking of desperation and distress, real estate auctions are becoming mainstream marketing tools as sellers from Denver to New York use them to move property.

Stigma Fading

While the real estate auction hasn’t completely shaken off the stigma as a venue for liquidations and foreclosures, its image is changing as quickly as an auctioneer can talk.

Last year, national auction revenue jumped 7.1 percent to $257.2 billion compared with the year before, according to industry reports.

Residential real estate was the fastest growing part of the industry, rising by 12.5 percent and generating about $16 billion in sales.

“We’re seeing more real estate sales every year,” said Mark Thomas, with Houston-based PMI-Real Estate Auction Services.

‘Marketing Tool’

Although local property owners participating in this month’s auction are eager to sell, Thomas said he couldn’t think of any who were in financial straits.

“It’s not only for problems or liquidations, it’s a marketing effort and marketing tool,” Thomas said.

Changed Market

Island Realtors are longing for the giddy days of 2005, when buyers, unfazed by rising prices, engaged in bidding wars and waited on lists for condos and waterfront properties.

Most everyone agrees that year was a fluke.

And compared to 2000, real estate on the island is going strong.

But some properties have languished on the market for months, after the hurricanes of 2005 cooled house-buying fever on the Texas coast.

Nationally, the subprime mortgage mess has softened sales as lenders tighten requirements for buyers with bad or subprime credit.

But Texas is faring much better than once over-heated markets across the nation, industry observers say.

Island Market

But in Galveston, hundreds of new mid-priced condominiums are causing a supply glut, competing with similarly priced properties across the island.

Late last month, 900 houses and 600 condominiums were listed for sale on the island.

So far this year, Realtors closed sales on 167 homes, compared with 187 the year before.

As of mid-April, only 40 condos had sold, compared with 62 for the same period the year before, according to information provided by David Bowers, a Realtor with island-based The House Co.

McKinley said an auction is a way to market his property among the hundreds on the market in Galveston.

“It’s an opportunity for us to try to bring buyers into the area,” McKinley said. “There’s a lot of property in Galveston for people to sift through.”

Buyers’ Market

After rising three consecutive months, total existing home sales nationally, including single-family, townhomes, condominiums, fell 8.4 percent to 6.12 million units compared to February.

Sales fell 11.3 percent compared with March last year, according to the National Association of Realtors.

Buyers aren’t pressured to make quick decisions in this market, Pat Vredevoogd Combs, president of the association, said last month.

“We’re in a window of low interest rates with a plentiful supply of homes on the market and flat prices in most areas,” Combs said.

“First-time buyers now have more power to negotiate with sellers for help on down payment or closing costs.”

Bright Spots

While median home prices are dipping across the nation, island prices are increasing.

While homes sales are fewer, dollar volume on the island is higher.

Year-to-date, the median price of an existing home in Galveston is $225,000 compared with $185,000 for the same period the year before, according to data compiled by The House Co.

McKinley, who also owns three condominium units in Palisade Palms, a luxury high-rise under construction on East Beach, is a seasoned real estate investor.

He said he is far from desperate, and unlike most other investors, doesn’t have mortgages on his island properties.

McKinley has purchased and sold property in auctions before.

Recently, in Steamboat Springs, Colo., he attended an auction hoping to walk away with a bargain.

“I went to Steamboat to buy a 60-acre lot for horses and I thought I could pick up the property for about $250,000,” he said.

“Five minutes into the auction, the property sold for $1 million.”

Thomas said some sellers participating in the auction are sweetening the pot with incentives.

One island seller is tossing in a 2007 Hummer SUV.

Most properties will require a minimum bid. But McKinley is allowing one property to sell for what buyers are willing to pay.

“I want to generate excitement,” he said.

Sellers must pay a marketing fee anywhere from several hundred to more than $1,000 to auction houses, depending on the property.

McKinley said he likes auctions because people come prepared to buy. Buyers also determine the purchase price, which Thomas said is purest way to determine the true market value.

Typically, the seller also knows when their property will sell.

What About Realtors?

The National Association of Realtors has encouraged its membership to understand auctions and their potential benefits.

Agents also can earn commissions in the process, the association said.

McKinley said the auction would draw serious buyers from all over and offer exposure to Galveston, especially beaches at extreme ends of the island few people know about.

“In a sense, people coming to the auction already are buyers,” he said.