WASHINGTON—Won-Ki Choi and his wife Janice had their eye on the Fairfax, Va., townhouse for some time. But the $536,449 price tag was much too high for them.
Then they saw a newspaper ad from Ryland Homes: For two hours on a recent Saturday afternoon, the Calabasas, Calif.-based builder would sell 140 homes in the Washington area at a discount, through a silent auction.
"This is your lucky day," Jerie Wolicki, a company receptionist, told him.
When the housing market began to weaken, builders responded with incentives such as money toward closing costs and low-interest loans through their mortgage arms, but they did so without cutting their base prices. Faced with a glut of unsold homes and canceled contracts, builders are now turning to tactics typical of car dealerships and department stores. What's even more unusual is that the deals are often accompanied by deep price cuts, which builders had been reluctant to do up until now.
"It's a little odd thinking of homes being sold that way," said Dean Baker, co-director of the Center for Economic and Policy Research in Washington. "You think of a sale for coffee or laundry detergent, but not really for a home."
Craftstar Homes recently had a "Luxury Home Clearance Sale!" where customers could win a vacation and up to $110,000 off an already-built house. Buy a Ryan Home and get "employee pricing," or 10 percent off the purchase price up to $35,000. At a North Bethesda, Md., condominium complex, buyers got $50,000 off the price or toward closing costs last weekend.
"It's one gimmick after another," Baker said.
But the buyer should beware, housing experts say. The sales typically come with conditions, disclosed in the fine print, such as use of the builder's lender. And in the case of the auctions, buyers can often negotiate the lower price or incentives even if they don't make the decision that day.
Still, said Chris Longly, public affairs manager for the National Auctioneers Association, such sales are the fastest-growing sector of the auction industry. "We're seeing more of it every day, especially this particular type of auction where builders are choosing to go to auctioneers to help them liquidate the properties," he said.
If it all seems a bit desperate, there's good reason. Sales of new homes dropped nationally in August to an annual pace of 795,000, the lowest level in more than seven years, and the median price dropped 7.5 percent from a year earlier, the Commerce Department recently reported.
And the tightening of credit from a rise in foreclosures, especially among risky borrowers with adjustable-rate mortgages, is expected to push even more potential buyers out of the market. The foreclosures are also likely to add to an already-bloated inventory.
"They are using probably whatever techniques and methods to try to sell those houses any way they can," John McClain, senior fellow at the Center for Regional Analysis at George Mason University, said of the builders.
Many of the nation's top builders, including Los Angeles-based KB Home and New Jersey-based K. Hovnanian Homes, reported losses in the third quarter.
Builders are "slitting each other's throats trying to get market capture and compete with resales," said Kenneth Wenhold, regional director of real estate research firm Metrostudy.
As a result, he said, a handful of builders have cut prices considerably, up to 20 percent.
"It's the excess inventory that is killing these builders," Wenhold said. "For every month that it's unsold, they basically have to write checks to the banks."
Builders say they have no other choice.
"We were trying to figure out how do we break through all the clutter that's out there with home builders" said Mike Disler, Ryland's Washington Division president. "I think people understand that it's totally beyond our control and all the builders are reacting to market conditions."
In fact, 52 percent of builders surveyed in August reported lowering sales prices, unheard of a few years ago, said Gopal Ahluwalia, staff vice president of research for the National Association of Home Builders.
About one-third are offering huge reductions for a limited time, he said. More than 70 percent are offering some kind of concession compared with 50 percent four years ago, he said.
Builders said the auctions and sales have produced generally positive results.
During one weekend last month, K. Hovnanian held a "Deal of the Century" sale with price reductions of up to $100,000. The company sold more than 2,000 homes nationwide, said Dee Minich, group senior vice president of sales and marketing.
In addition, until Oct. 31, the company is having a "BOGO," or buy one get one free, sale. For every option you pay for, such as hardwood floors, you'll get another one of equal or lesser value free, the company promises in full-page ads.
Disler said the number of contracts was up about 40 percent in the company's Washington area communities from the average during the six to eight weeks before the auction.
"I think it kind of accomplished some of the objectives but wasn't as robust as I wanted it to be," he said.